There's a good reason why Warren Buffett likes Vanguard funds. Vanguard, led by (the late) Jack Bogle, pioneered and popularized investing in index funds. Vanguard's funds are known for their low costs.
Those low expense ratios wouldn't mean much, though, if Vanguard's funds didn't perform well. The good news is that many of them do. Vanguard's top exchange-traded fund (ETF) is up 24% this year. But there's another ETF up twice as much.
Beating Vanguard's best
Vanguard offers 86 ETFs. One has outperformed all others in 2024: The Vanguard S&P 500 Growth Index Fund ETF(NYSEMKT: VOOG). This ETF has jumped 24% this year following an impressive 28% gain in 2023.
Most investors would probably be happy with these returns. However, those who want even bigger gains might want to check out the VanEck Semiconductor ETF(NASDAQ: SMH). This ETF has soared a whopping 48% year to date.
The VanEck Semiconductor ETF is managed by global investment manager VanEck. This ETF attempts to track the performance of the MVIS U.S. Listed Semiconductor 25 Index. As its name reflects, this index includes companies involved in semiconductor production and equipment that trade on U.S. stock exchanges.
This year's big returns aren't a fluke for the VanEck Semiconductor ETF. It has delivered an average annual return of 38.6% over the last five years. Since the fund's inception in December 2011, its average annual return is 26.5%. By comparison, the Vanguard S&P Growth Index Fund ETF is up 16.6% over the last five years and 15.7% since its inception in September 2010.
Why the VanEck Semiconductor ETF is soaring
You can probably make a good guess as to why the VanEck Semiconductor ETF is performing so well this year. Chip stocks are sizzling hot thanks primarily to surging demand for servers for training and deploying artificial intelligence (AI) systems.
This VanEck ETF owns only 26 stocks. The top five holdings make up over 50% of its total portfolio. When these stocks move higher, so does the ETF's price. And they've moved a lot higher so far in 2024.
The fund's largest holding is Nvidia, which comprises 20.4% of its total assets. Nvidia's share price has exploded 150% higher this year. Customers can't get enough of the company's graphics processing units (GPUs), which are the gold standard in supporting AI models.
Another 12.9% of the VanEck Semiconductor ETF is invested in Taiwan Semiconductor Manufacturing. The company makes chips designed by leading customers including Nvidia. Its stock is up 65% year to date.
Roughly 7.7% of the fund's portfolio is in Broadcom. The company recently announced a 10-for-1 stock split. Its shares have jumped more than 40% in 2024.
The VanEck ETF's fourth- and fifth-largest positions are Advanced Micro Devices and ASML Holding with 4.97% and 4.8%, respectively, of the fund's net assets. Advanced Micro Devices is one of Nvidia's top rivals. Its stock is up only around 8% this year. Meanwhile, shares of semiconductor fabrication equipment maker ASML have risen over 35%.
Should you buy this high-flying ETF?
Risk-averse investors should probably stay away from the VanEck Semiconductor ETF. When it falls, it falls hard. For example, in the second quarter of 2022, the ETF plunged 24%. The fund also trades at a premium with a price-to-earnings ratio of over 39 for the stocks in its portfolio.
However, aggressive investors who want to own a basket of semiconductor stocks should consider buying the ETF. AI should continue to provide a strong tailwind for these stocks. The VanEck ETF's annual expense ratio is 0.35%, higher than Vanguard's top ETF this year but still not too expensive. Also, Morningstar gives the VanEck Semiconductor ETF a five-star rating (the highest possible).
As far as I know, Buffett has never recommended VanEck as he has Vanguard. He doesn't own any VanEck ETFs. But with the pluses of the VanEck Semiconductor ETF, maybe he should.
Should you invest $1,000 in VanEck ETF Trust - VanEck Semiconductor ETF right now?
Before you buy stock in VanEck ETF Trust - VanEck Semiconductor ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and VanEck ETF Trust - VanEck Semiconductor ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $757,001!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of June 24, 2024
Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
