The Chip Funds That Quietly Beat Nvidia's Favorite ETF

If you bought "the chip ETF" over the past year, chances are you bought SMH, the VanEck Semiconductor ETF. It's the biggest, the most talked about, and it's still up an eye-popping ~87.8% over the trailing 12 months. That sounds like a home run. But a handful of smaller, less famous chip funds did even better — some by 20, 30, even 40 percentage points. Here's why, explained without the jargon.

The problem: SMH bet big on one company

SMH is built on a simple rule: the bigger a company, the bigger its slice of the fund. That's called market-cap weighting, and for years it worked beautifully, because Nvidia kept getting bigger and bigger. At its peak, Nvidia alone made up somewhere between 18% and 22% of everything SMH owns. Add in Taiwan Semiconductor, and two companies controlled roughly a quarter to a third of the entire fund.

That's fine when your biggest holding keeps sprinting ahead. But in the first half of 2026, Nvidia's growth cooled off to a modest ~5% gain. When your single largest position stalls, it drags an outsized weight on the whole fund — and none of SMH's smaller holdings were large enough to pick up the slack.

The winners: funds that spread the bet around

While Nvidia idled, the real action in 2026 moved to a different corner of the chip industry: memory makers like Micron, and the equipment companies that build the machines used to manufacture chips. Funds that hadn't let one or two stocks dominate their portfolio were positioned to catch that move. Funds that cap how much any single stock can weigh in the fund were forced, by design, to hold meaningful stakes in these fast-movers — and it paid off.

The simple idea behind all of this

Think of a fund like a basket of fruit. SMH fills most of the basket with one giant watermelon (Nvidia) and a large cantaloupe (Taiwan Semi), with smaller fruit scattered around. When the watermelon stops growing, the whole basket's weight barely changes, no matter what the smaller fruit does.

Funds like SOXX and PSI instead say: no single fruit can take up more than a small slice of the basket. That forces them to keep meaningful room for apples, oranges, and grapes — in this case, memory chipmakers and equipment suppliers. When those smaller "fruits" grew the fastest in 2026, the capped baskets grew faster too.

What this means for a retail investor

• Diversification isn't just about owning more stocks — it's about how much weight each one gets. A fund can technically hold 25 chip stocks and still behave like a bet on just one or two, if those two dominate the weighting.
• Concentration cuts both ways. The same uncapped exposure to Nvidia that supercharged SMH for years is exactly what held it back in 2026. There's no free lunch — you take the upside and the drag together.
• Check a fund's top 10 holdings before you buy it. Two ETFs can share the word "semiconductor" in their name and behave completely differently depending on how they weight their stocks.