The VanEck Semiconductor ETF (NASDAQ:SMH) returned 45% year to date while its most famous constituent barely participated. NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) is up only 11.04% YTD, weighed down by the China H20 overhang and a valuation reset even as the business itself printed 85.23% revenue growth in Q1 FY27.
SMH thrived despite NVIDIA lagging, which is a different and more interesting story about what the fund does.
The rally that stopped being one stock
For two years, owning SMH was mostly a leveraged bet on Jensen Huang’s roadmap. In 2026, the engine changed. Memory ripped first. Micron Technology (NASDAQ:MU) is up 158% YTD on severe DRAM and HBM shortages, with fiscal Q3 revenue up 345.7% year over year and HBM4 already in high-volume shipments. Then the inference and agentic-AI wave lifted the CPU/GPU also-rans: Advanced Micro Devices (NASDAQ:AMD) climbed 102% on the Meta 6-gigawatt MI450 win, and Intel (NASDAQ:INTC) somehow rallied 115% as CEO Lip-Bu Tan delivered the strongest revenue growth in more than fifteen years.
Equipment makers rode the capex tide. ASML Holding (NASDAQ:ASML) is up 35% YTD after raising its FY26 guide and telling investors it will add 30% more low-NA EUV capacity for 2027. When NVIDIA underperforms, and your fund still compounds at over 56%, something structural is happening beneath the ticker.
Obviously, most of these semiconductor names are selling off sharply as of this writing, but they’re still sitting atop historic year-to-date gains.
How the index rulebook did the work
SMH tracks the MVIS US Listed Semiconductor 25 Index, which imposes a per-position weight cap and rebalances quarterly. Sources on the exact cap conflict, so treat it qualitatively: when any single holding, NVIDIA included, blows through the ceiling between rebalances, the next reset trims it.
That is why, per the May 27, 2026 fact sheet, AMD sits at the top at 10.33%, ahead of Broadcom (NASDAQ:AVGO) at 9.57%, Micron at 9.39%, TSMC (NYSE:TSM) at 8.75%, and NVIDIA at only 8.40%. A discretionary manager would have been tempted to let NVIDIA compound to 25% of the book. The rulebook did not permit it. That mechanic, boring on the way up, protected the fund on the way down.
What you are actually buying
SMH is a concentrated fund of roughly 25 stocks. The top 10 holdings run through Texas Instruments (NASDAQ:TXN) at 4.52%, and together they dominate the portfolio. This is sector exposure. You are paying 0.35% in fees to own the same six or seven names most investors could buy directly, wrapped in an index rule that enforces trimming.
The tradeoffs are not theoretical
Semiconductors are violently cyclical. The 2022 downcycle produced meaningful peak-to-trough drawdowns in this fund, and there is nothing in the index methodology that softens that.
Second, geographic concentration is real. TSMC at 8.75% plus ASML at 8.13% means any Taiwan Strait headline or fresh export-control tightening hits a meaningful slice of the fund in one session. You can already see the tremor in SMH’s pullback over the past month and the 4% drop today. Analysts have warned the pace of these gains is not sustainable, and a chart that goes vertical rarely stays vertical.
Who this fund actually fits
SMH makes sense as the semiconductor sleeve for an investor who wants concentrated AI-cycle exposure without picking which name wins next, and who can stomach a 30%-plus drawdown when the cycle turns. Anyone treating SMH as a broad tech proxy is mispositioned; the 300% five-year return came with cycle risk still fully intact.
A cheaper, broader alternative like a mainline tech-sector fund captures adjacent winners at lower single-industry risk. If you want the pure play, the rulebook is doing its job, though it is not a hedge.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks