For many investors seeking exposure to the semiconductor industry, the VanEck Semiconductor ETF (SMH) has long been a favored option, boasting substantial assets under management. Over the past year, ending October 30, 2026, SMH delivered a commendable 44.09% total return. Yet, a less prominent competitor, the First Trust Nasdaq Semiconductor ETF (FTXL), significantly outpaced it during the same period, achieving a remarkable 67.35% return. This represented a substantial lead of 23.26 percentage points for FTXL, illustrating how a 100,000-dollar investment in SMH would have grown to 144,090 dollars, while the same amount in FTXL would have reached 167,350 dollars.
This performance divergence extends to the calendar year as well, with FTXL up 63.18% year-to-date against SMH's 45.08% as of October 30. However, a broader historical perspective reveals a different picture. Over longer investment horizons, specifically five and ten years, the roles are reversed, and SMH emerges as the stronger performer. From October 29, 2021, SMH's five-year return was 293.58%, significantly outperforming FTXL's 210.27%. This pattern is even more pronounced over a decade, where SMH returned an astounding 1595.48% compared to FTXL's 1024.25%. The disparity in returns between these funds stems from their underlying index methodologies: SMH focuses on the largest and most liquid US-listed semiconductor companies, while FTXL employs a factor-weighted approach based on volatility, value, and growth. Recent market downturns saw both funds experience sharp declines, with FTXL losing 16.52% and SMH 14.21% over the last month, underscoring the inherent volatility in this sector.
Considering these dynamics, investors must weigh the short-term gains of factor-driven funds like FTXL against the proven long-term resilience of market-cap-weighted funds such as SMH. The decision to switch between these ETFs, particularly in taxable accounts, carries implications for capital gains. Therefore, understanding the distinct strategies and associated risks of each fund is crucial for making informed investment choices that align with individual financial objectives and risk tolerance.
