iShares Semiconductor ETF (SOXX -0.38%) and VanEck Semiconductor ETF (SMH -0.38%) have a lot in common. Both track the semiconductor industry and are passively managed. Despite these similarities, SOXX is up roughly 68.37% YTD, while SMH is up about 51.83% YTD (as of Aug. 25, 2026).

While both semiconductor ETF returns are impressive, the 16.54-percentage-point gap is notable.

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How SOXX hedges its bets

The key reason SOXX ETF is likely to continue outperforming SMH comes down to how each fund spreads its money. In SOXX, the top holdings are all relatively close in size. For example:

• Nvidia is about 8.98%.
• Micron is about 8.53%.
• Advanced Micro Devices makes up about 8.05% of the fund.
• Broadcom is about 7.30%.
• Marvell is about 5.09%. 

In addition, other big names, such as Applied Materials, Texas Instruments, TSMC, KLA, and Lam Research, make up around 4% of the ETF's holdings. This means SOXX doesn't allow any one stock to represent more than about 9% of the fund, keeping it relatively balanced.

The top-heavy nature of SMH

SMH ETF operates differently. Here's how:

• Nvidia alone makes up about 21.94% of SMH's holdings.
• Taiwan Semiconductor makes up another 9.59%.
• Broadcom and others follow in far smaller percentages. 

That means that the top two stocks in SMH take up over 30% of the fund, or nearly one-third. This concentration may be profitable, but it also represents greater risk.

The advantage goes to SOXX

If the chip boom continues to spread beyond just Nvidia and a few other giants, a more evenly balanced fund like SOXX is better positioned to benefit from many winners at once. At the same time, if a giant like Nvidia stumbles, SMH could take a harder hit because so much of its money is tied up in that single stock. SOXX would feel less damage if its top holding stumbled because its risks are more evenly distributed.

An example of what can go wrong

One recent example of how an ETF can go off the rails -- if only for a short time -- is First Trust Nasdaq Semiconductor ETF (FTXL -0.17%). Although it's marketed as an equal-weight semiconductor ETF, its top five holdings total roughly 39% of the fund.

When Broadcom, one of its top holdings, dropped about 13% and Intel fell by almost 12% in a single week, the fund lost 5% of its value over five trading days. It illustrates how weakness in just a couple of dominant positions can drag down an entire ETF.

If SOXX and SMH maintain their current balances, it's easy to predict that SOXX will continue to dominate.