Key Takeaways:
The VanEck Fabless Semiconductor ETF has returned 58% this year by owning only chip designers — and excluding every manufacturer by mandate.
The VanEck Fabless Semiconductor ETF (SMHX) has surged 58.48% year to date through July 6, closing at $60.27, as the fund's concentrated bet on AI chip designers captured the pricing power in the current semiconductor cycle. The ETF, which launched around August 2024, owns only fabless companies — firms that design chips but outsource manufacturing to third-party foundries — and excludes every integrated device manufacturer and pure-play foundry by construction.
"The design layer is where the margin lives in AI," said Rachel Kim, a semiconductor analyst at Edgen. "Fabless companies capture the premium on architecture and software ecosystems while foundries absorb the capital burden of fabrication."
SMHX's holdings include the marquee names of AI compute: NVIDIA, AMD, Qualcomm, Broadcom, and Arm, though exact weights require confirmation from the fund's latest disclosure. These companies engineer the graphics processors, custom accelerators, and networking silicon that hyperscalers are spending billions to deploy. The fund has returned 89.57% over the past year, reflecting the sustained appetite for AI infrastructure.
The exclusion of manufacturers is baked into the fund's index methodology. TSMC, the world's largest pure-play foundry with a $2.34 trillion market capitalization, cannot appear in a fabless fund because it receives the manufacturing orders rather than designing its own branded silicon. The same logic excludes integrated device manufacturers like Intel that operate their own fabrication plants. This is not a rebalancing decision — it is a structural screen that holds through every quarterly reconstitution.
The Foundry That Got Away
TSMC has ridden the same AI wave as the designers SMHX owns. The stock is up 49.42% year to date and 94.49% over the trailing year, with quarterly revenue growth of 35.1% and earnings growth of 58.4%. Analysts carry an average price target of $490.34 on the stock.
The irony is that broader semiconductor ETFs using market-cap or industry classification screens typically hold TSMC as a top-five position. SMHX shareholders get the designers without the manufacturer — a cleaner bet on the design layer, but also a more concentrated one. Excluding a $2 trillion foundry removes a natural diversifier and leaves the portfolio more exposed to design-side dynamics: customer concentration among a handful of hyperscalers, competitive pressure between GPU and custom-silicon roadmaps, and the pricing power of a small set of intellectual property owners.
What the Exclusion Means for Risk
The fabless-only mandate concentrates the fund's fortunes around a single foundry partner: TSMC. Any disruption to TSMC's output — whether from geopolitics around Taiwan, capacity allocation shifts, or pricing changes — would affect every SMHX holding simultaneously. Broader semiconductor ETFs that include Intel, Micron, and Texas Instruments spread that risk across manufacturing as well as design.
Recent price action shows the group can pull back sharply. SMHX slipped to $58.48 in the most recent session, a 2.97% single-day decline, and is down 2.48% over the trailing week. The one-month return stands at a modest 1.23%.
For investors, the question is whether the AI trade lives primarily in the design layer or across the full semiconductor stack. SMHX offers a pure bet on the architects of AI silicon. Those who want exposure to the foundries, packagers, and equipment makers will need a different vehicle. The fund's short track record and concentrated mandate make it a high-conviction tool rather than a core holding — one whose 58% year-to-date return reflects both the opportunity and the risk of betting on a single layer of the chip supply chain.
This article is for informational purposes only and does not constitute investment advice.
