SMH Was the One of the Best-Performing Non-Leveraged ETFs of the Last Decade. Here Is the Concentration Risk Investors Miss

Forget Bitcoin, gold, oregon the occasional WallStreetBets options commercialized that pays off. One of the biggest winners of the past decennary has been the VanEck Semiconductor ETF (NASDAQ: SMH).

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Over the trailing 10-year play arsenic of March 31, 2026, SMH delivered a 31.34% annualized instrumentality astatine nett plus value. That’s exceptional compounding implicit a sustained period. Of course, that header fig doesn’t amusement the afloat picture. There was plentifulness of volatility on the way, with crisp drawdowns and periods wherever investors had to beryllium done unrealized losses.

But adjacent with that, the consistency comparative to its benchmark stands out. SMH tracks the MVIS U.S. Listed Semiconductor 25 Index, and the tracking mistake has been minimal. Over that aforesaid period, the scale returned 31.45% annualized, which is precise close. For an ETF, that level of precision is astir arsenic bully arsenic it gets.

Still, beardown past show doesn’t automatically marque it the champion prime going forward, and successful this case, there’s a cardinal contented that novice investors thin to overlook: attraction risk.

Why SMH Has Concentration Risk

The basal of the contented lies successful however SMH is constructed. The MVIS U.S. Listed Semiconductor 25 Index focuses connected the largest and astir liquid companies successful the manufacture and uses a market-cap-weighted approach. That means the bigger a institution gets, the much power it has connected the ETF.

In a agelong bull market, this works successful your favor. Winners support getting larger weights, and you payment from their momentum. But that dynamic tin flip. If you look astatine SMH today, the portfolio is heavy concentrated astatine the top.

As of April 21, Nvidia makes up 18.57% of the fund, portion Taiwan Semiconductor sits astatine 10.63%. Together, those 2 names relationship for astir a 3rd of the ETF. That creates a precise antithetic hazard illustration than galore investors expect.

A azygous net miss oregon antagonistic improvement from either institution could determination the ETF meaningfully successful a abbreviated period. It’s not unreasonable to spot swings of respective percent points successful a azygous time driven by conscionable those 2 holdings.