SOXX vs. FTEC: Weighing Semiconductor Concentration Against Broader Tech Exposure

Investors navigating the technology sector have distinct options depending on their desired risk profile and market exposure. The divergence between specialized hardware funds and broad-based technology trackers was highlighted recently in market analysis comparing two popular exchange-traded funds.

The iShares Semiconductor ETF (SOXX) offers a targeted approach, concentrating its portfolio on 30 semiconductor manufacturers. This strategy provides investors with exposure to the chip industry, characterized by high volatility and significant potential gains during periods of hardware demand. The fund generally allocates at least 80% of its assets to the component securities of its index.

In contrast, the Fidelity MSCI Information Technology Index ETF (FTEC) takes a wider view of the sector. By encompassing the entire technology landscape rather than just chipmakers, FTEC offers a diversified entry point that typically comes with lower volatility and reduced expense ratios compared to more concentrated funds. This broad-market approach includes software, hardware, and IT services, spreading risk across various sub-sectors.

The choice between the two often comes down to volatility tolerance. SOXX tends to exhibit higher beta, meaning its price movements are more pronounced relative to the broader market, as measured by the S&P 500 over five-year monthly returns. Meanwhile, FTEC’s broader construction aims to smooth out the sharp swings often seen in the semiconductor cycle.

What to watch

• Upcoming earnings reports from major semiconductor firms within SOXX’s holdings.
• Expense ratio comparisons and total expense figures for both funds.
• Trailing 12-month distribution yields and 1-year total return metrics.

Source: original release