Recently, many friends have asked me about semiconductor ETF investment opportunities. Indeed, this sector has become hotter and hotter over the past two years. After taking a look at the market myself, I found that many people actually don’t know much about what the differences are between semiconductor ETFs in the Taiwan market and those in the U.S., let alone how to choose.

Let’s first talk about the background. The semiconductor industry runs through every stage of how human lifestyle habits have evolved. From the personal computer era, to the mobile phone era, the cloud era, and now the AI era, chips have always been at the core. Among Taiwan’s technology stocks, more than 70% are related to semiconductors. Especially for leading players like TSMC—so investing in Taiwan stocks is, to a certain extent, also investing in semiconductors.

There are quite a few options in Taiwan. 0050 and 006208 are relatively broad choices, but if you want to invest purely in semiconductors, I think 00891 China Trust Key Semiconductor ETF and 00830 Cathay Fubon Philadelphia Semiconductor ETF are better picks. 00891 invests in 30 Taiwan-listed semiconductor companies. It uses a composite weighting based on dividend yield, market capitalization, and ESG, rather than relying solely on market-cap weighting. The benefit of this approach is that, in the long run, it is relatively more stable. 00830 tracks the Philadelphia Semiconductor Index, covering globally well-known semiconductor manufacturers. Between the two, the main consideration is whether you invest using TWD or USD.

As for U.S. semiconductor ETFs, the choices are even more abundant. Here, I’ll focus on three: SMH, SOXX, and XSD.

SMH is the world’s largest semiconductor ETF. It tracks the 25 largest semiconductor companies in the United States and uses market-cap weighting, with a single-stock cap of 20%. I looked at its recent holdings—NVIDIA and TSMC do have very high weights, which is also why SMH’s annualized return over the past decade has reached more than 27%. However, concentration risk is also more obvious: once the leading stocks pull back, the ETF’s performance will be affected more significantly.

SOXX is a bit more conservative. Launched in 2001, it’s a long-established tracker of the Philadelphia Semiconductor Index. Its distinctive feature is that the cap for any single stock is only 8%, and it mainly invests in U.S. companies, with ADR exposure capped at a maximum of 10%. This means that even though global giants like TSMC and Amkor have very large market caps, their weights in SOXX are relatively smaller. Over the past five years, SOXX’s performance has indeed lagged behind SMH, because it hasn’t been able to fully benefit from the rise of ASML and TSMC. Still, from a risk perspective, individual-stock risk is more diversified.

XSD is issued by State Street Group. It tracks the S&P Semiconductor Select Industry Index. It is the smallest in size, holds 39 stocks, and uses equal weighting. Because it mainly includes smaller semiconductor companies, it is more diversified, but in terms of performance, it can’t keep up with the rally led by the leading stocks.

My personal view is that if you believe in the logic of “the strong get stronger,” and you think the future of the semiconductor industry will be led by leading companies, then SMH is a relatively good choice. If you’re optimistic about the U.S.’s long-term technology advantages and want more diversified individual-stock risk, SOXX may be more suitable. XSD is for investors who want even more diversification and don’t want to be overly concentrated in large companies.

When it comes to choosing, I think the most critical part is understanding how the index each ETF tracks selects stocks. Market-cap-weighted indexes tend to lean toward stronger performers, while free-float market-cap-weighted indexes tend to be more regionally balanced. Semiconductors are a globally segmented industry, and the leaders across the upstream, midstream, and downstream may be spread across different countries. So there is no perfect stock-selection method—what matters most is being clear about your own investment preferences.

If you’re planning an ultra-long-term retirement strategy, you can consider SOXX-type ETFs that track the Philadelphia Semiconductor Index, which have more diversified risk. If you want to capture the short-term growth of industry leaders, SMH is more appropriate. With current geopolitical tensions and the wave of de-dollarization both affecting the market, I recommend paying attention to diversification and not concentrating too heavily in a single market.

Recently, I’ve also been keeping an eye on the price movement of semiconductor-related assets on Gate. If you’re interested, you can go take a look yourself. As AI continues to develop, semiconductors should still have long-term positive catalysts. This wave of opportunities for wealth redistribution is worth seizing.