XSD's 0.35% Fee Hides a Four-Figure Return Gap Against Cheaper Rivals

If you own the SPDR S&P Semiconductor ETF (XSD) for semiconductor exposure, the fund's 0.35% expense ratio is the least interesting number attached to your account. The real cost hides inside the word "equal-weight," and over the past decade it has quietly drained hundreds of percentage points of return versus two funds with nearly identical objectives.

Details

XSD is an exchange-traded fund that tracks the S&P Semiconductor Select Industry Index, but it weights all constituent companies equally. This means that smaller companies like NVIDIA (NVDA) and Broadcom (AVGO) receive the same weight as larger ones. In contrast, other ETFs like iShares PHLX Semiconductor Sector Index ETF (SOXX) or Invesco Dynamic Semiconductors ETF (PSI) use different weighting schemes.

Context

Over the past decade, semiconductor ETFs with larger weightings have significantly outperformed XSD. For instance, SOXX has delivered much higher returns than XSD, meaning XSD investors lost out on hundreds of percentage points of potential returns.

What This Means for Investors

Investors should look beyond expense ratios when choosing ETFs. The weighting structure can have a substantial impact on returns, especially in sectors where company performance varies widely.