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Best semiconductor ETFs in the UK 2023

If you are considering starting investing, taking up an Exchange Traded Fund (ETF) could be the best way of meeting your investment goals. ETFs can be focused across a wide range of industry sectors, one of which is the semiconductor industry. This guide will tell you all your need to know about UK semiconductor ETFs and why one might be right for you.

What is an exchange-traded fund?

The answer to the question of what is an ETF? is that it is a specific type of investment vehicle that tracks an index. If you are new to investing, you may not know what an index is in financial terms. So, before we discuss UK semiconductor ETF products, which are US ETFs that UK investors can access through channels that grant UK access to the US semiconductor ETF market, let’s first deal with what is meant by the word” index.”

What is an index in the world of finance?

You can think of an index in financial terms as something like a ruler. It’s a way of measuring something in the finance and investment worlds, and that something is the performance of a group of assets.

ETF or index fund – which is best?

A semiconductor ETF tracks several industry sectors, whereas an index fund, although it diversifies across several companies, only operates within one specific industry. While fund management costs are similar, there are several other significant differences. Before making any investment decision, it would be best to talk to a specialist financial adviser or firm.

You’ll find this article entitled ETF versus Index Fund helpful and informative.

Before we leave the Index Fund discussion, you might like to look at Capped Index trading.

Now – back to ETFs.

Having covered the basics, we can begin to explore the semiconductor ETF UK options – an exchange-traded fund that tracks the semiconductor sector index and that UK investors can gain access to.

About semiconductors

We have to go back to 1874 to find the birth of the semiconductor concept when the AC/DC converter was first invented. But it was many decades after that the first real semiconductor was invented.

It was in 1947 when Messrs Bardeen and Brattain invented the point-contact transistor, followed a year later by the invention of the junction transistor courtesy of one William Shockley. All three were employees of Bell Laboratories.

It ushered in the transistor era and the eventual establishment of the Silicon Valley, in California, in the United States, and the rest, as they say, is history. If you’d like to read about this history in more detail, you’ll find this article on the Hitachi site makes for interesting reading.

Semiconductors power our modern world

Semiconductors are an intrinsic part of all sorts of industries and products, including communication, computers, energy, entertainment, medical machines, and science in general.

Branson Gaille’s analysis shows that over a quarter of a million people are employed in semiconductor research and development, design and manufacture. The industry, which represents 45% of global semiconductor capacity, adds $24.6 billion to the US economy. Ongoing development worth $50 billion will see employment in the semiconductor industry reach 319,000 by 2026.

The industry is cleaning up its act

Some potential investors are cautious about opening a Semiconductor ETF due to the industry’s lousy track record on human rights, trafficking, and modern slavery. Malaysia is one of the world’s largest semiconductors producers, producing 7% of global output, and it has a chequered record on human rights.

Only six years ago, in 2016, the Guardian newspaper published a report entitled, “Malaysia: forced labour casts a dark shadow over electronics industry.”

But today, the industry has significantly cleaned up its act with companies adopting human rights policies along the ethical lines of the US onsemi, a semiconductor company.

Should you invest in a semiconductor ETF?

Semiconductor UK Exchange Trade Funds are becoming increasingly popular with institutional investors. The fund management of ETFs is mainly passive, meaning that these are funds set out to track their index sectors. On the other hand,  actively managed ETFs seek to better the indexes they follow. As a result, they are becoming increasingly popular but have higher management fees.

Passively managed ETFs are much more common. As well as having low fees, they offer flexibility, tax efficiency, and transparency.

Shortlist of 7 of the top semiconductor ETFs

One of the best ways of searching for the top-performing Semiconductor ETFs is to check out the MVIS US Listed Semiconductor 25 Index. It reports on the performance of 25 of the biggest and most liquid businesses in the semiconductor arena. It’s a weighted index that only covers companies, 50% of whose revenue is generated from semiconductors or equipment used in semiconductor production, testing or research and development. The top performing semiconductor ETFs according to YTD yield include:

You’ll find the iShares Semiconductor ETF UK fund (PHLX) quoted on the London Stock Exchange (OJG8).

The importance of UCITS

If your financial instrument of choice is to invest in an ETF, you might choose a Semiconductor UCITS ETF fund. The initials UCITS stand for “Undertakings for the Collective Investment in Transferable Securities.” It refers to a set of voluntary rules that many ETFs commit to, relating to things like diversification, guidance on charges, and safeguarding investments.

Does Vanguard have a semiconductor ETF?

One of the biggest US investment advice and financial services companies is Vanguard. You can invest in the VanEck Semiconductor ETF, which they offer only by prospectus.

Which ETF includes ON semiconductor shares?

The aforementioned ON Semiconductor (onsemi) company was a spin-off from Motorola back in 1999. Today they are one of the most important semiconductor developers and manufacturers worldwide with a solid commitment to ESG philosophies. It makes them an attractive proposition for ESG-minded investors.

If your investment objectives are ESG related and you’re looking for an investment portfolio whose future performance includes these principles, ETFs that include ON Semiconductor shares are desirable.

172 ETFs include semiconductor asset classes and 224 ETFs hold ON semiconductor shares. The ETFs with the highest allocation of ON (onsemi) shares are the SPDR S&P 500 ETF Trust, followed by iShares Semiconductor ETF. As of July 2022, both ETFs hold over 4 million shares.

Clean Energy ETFs

Is a UK Semiconductor ETF a clean energy ETF? The answer is partly. Semiconductor raw materials still have to be mined. The clean energy markets most people associate with ESG include Sea, Solar, Wind Power, and electric vehicles.

However, all these industries have to get their raw materials somewhere, which usually involves some mining activity.  It’s unavoidable, so the iShares Global clean energy ETF also gets its hands dirty somewhere along the line.

A semiconductor ETF might not fit precisely into the ESG investment bracket. Still, taking up a fund investing in ON Semiconductor shares will undoubtedly meet some of the objectives. It’s also worth bearing in mind that many a so-called clean energy ETF wouldn’t exist if it weren’t for semiconductors.

What about ESG bond ETFs?

There is another class of asset management called a Bond ETF. According to Investopedia, 21 Bond ETFs listed on the American ESG ETF database have an ESG rating of 8 out of 10.

As far as a standard benchmark for SRI (Socially Responsible Investing) Bond investing is concerned, the closest thing available is the Bloomberg US Aggregate Bond Index.

Investing in General

If you are considering investing but are unsure how to buy or sell shares or whether it is best to invest in an ISA, a SIPP, or an ETF, you might want to consider opening a general investment account.

Whether you are interested in investing for ESG purposes only or want to take a more comprehensive look at investment vehicles like Semiconductor ETFs, don’t forget that investments can depreciate and appreciate. For the best advice, talk to a personal wealth specialist company, first making sure they are authorised and regulated by the Financial Conduct Authority.

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