A recent market analysis reveals that a lesser-known, more economical semiconductor Exchange Traded Fund (ETF) has quietly outperformed the leading fund in the industry this year. This notable achievement is largely attributed to strategic differences in portfolio composition, particularly regarding their holdings in a major chip manufacturer.
Detailed Report: A Tale of Two Semiconductor ETFs
As of September 9, 2026, the Xtrackers Semiconductor Select Equity ETF (CHPS) recorded an impressive year-to-date return of 81.52%. In contrast, the more established VanEck Semiconductor ETF (SMH) posted a return of 59.47% over the same period. This translates to a substantial 22-point lead for CHPS within an eight-month timeframe, highlighting a significant divergence in performance driven by distinct investment strategies.
A closer look at the portfolio structures reveals the core reason for this disparity. The SMH fund, with only 26 holdings as of June 30, 2026, is heavily concentrated. NVIDIA alone constitutes 17.55% of its net assets, with Taiwan Semiconductor Manufacturing adding another 9.29%. This concentrated approach meant that a quarter of SMH's daily movements were influenced by these two entities. While this strategy propelled SMH's growth during the AI-training boom from 2023 to 2024, it proved to be a disadvantage in 2026 as market capital shifted towards memory, backend equipment, and international suppliers.
Conversely, CHPS, as of May 29, 2026, holds 54 positions, with a significantly lower NVIDIA weighting of only 3.40% of its net assets. This broader diversification allowed CHPS to capitalize on the year's market trends, which saw strong performance in memory solutions and international equipment manufacturers. Key holdings in CHPS include Micron (6.82%), SK Hynix (6.80%), Advantest (2.22%), Tokyo Electron (2.79%), and other global players such as MediaTek, Infineon, VAT Group, ASML, and BE Semiconductor. These companies represent the market segments that led the semiconductor rally in 2026, demonstrating CHPS's foresight in its construction.
Furthermore, CHPS boasts a lower expense ratio of 0.15% compared to SMH's 0.35%. This makes CHPS not only an outperforming fund but also a more cost-efficient option, defying the common expectation that higher returns come with higher fees. For SMH investors, this means paying a premium for a more concentrated portfolio that has underperformed its more diversified, cheaper counterpart this year.
However, it is crucial to acknowledge the scale difference between the two funds. SMH is a behemoth with $77.2 billion in net assets as of June 30, 2026, while CHPS held $89.6 million as of May 29, 2026. This size disparity impacts liquidity, block-trade capacity, and the inherent risk of smaller funds being closed or restructured. Yet, the same diversification that aided CHPS's performance this year could also work against it if the market leadership shifts back to NVIDIA-centric growth.
Investor's Perspective: Navigating the Semiconductor Landscape
This comparison offers a valuable lesson for investors in the rapidly evolving semiconductor sector. SMH remains a viable choice for those seeking direct, liquid exposure to mega-cap AI chip leaders like NVIDIA and Taiwan Semiconductor, prioritizing scale over breadth. It aligns well with investors who believe these giants will continue to drive the next phase of innovation and growth. However, for those looking for broader market exposure, particularly to memory and international equipment segments, and who are comfortable with a smaller fund's liquidity profile, CHPS presents a compelling alternative. The year's performance clearly illustrates the impact of portfolio construction and diversification in a dynamic market. The decision to invest in either fund, or a combination, ultimately depends on an individual investor's risk tolerance, investment horizon, and their outlook on which segments of the semiconductor industry are poised for future leadership.
