There shouldn't be any question about the investment objective of VanEck Semiconductor ETF (NASDAQ: SMH). As its name clearly states, it invests in the semiconductor sector. So, by design, it isn't a particularly diversified exchange-traded fund (ETF), and that creates investment risk to factor into any buying decision.

But don't stop there -- there's one more diversification issue that you have to consider.

As already noted, VanEck Semiconductor ETF does exactly what its name implies and follows the Semiconductor sector. The exchange-traded fund tracks the MVIS US Listed Semiconductor 25. According to thematic market indexer Market Vector, this index "tracks the performance of the 25 largest and most liquid US exchange-listed companies in the semiconductor industry. This is a modified market cap-weighted index, and only includes companies that generate at least 50% of their revenue from semiconductors or semiconductor equipment."

Continue reading

Source Fool.com