SPX Exposure Is Fine — But Pairing It With SOXX Could Supercharge Growth

The S&P 500 has been delivering stellar gains over the past few years. 2025 was supposed to be the year when the S&P 500 started cooling down, as it delivered 25%+ total returns back-to-back in 2023 and 2024. The downturn this spring ostensibly confirmed that thesis, but the market bounced back. SPX is now up 10.26% year-to-date, as of this writing.

But even these gains can be amplified by having exposure to the hottest sector. The semiconductor sector is a key beneficiary of almost every growth trend at the moment. AI, data centers, electric vehicles, and defense are driving demand for more chips. The government is also pouring money into diversifying away from Taiwan and producing these chips domestically. Semiconductor stocks have delivered stellar returns over the coming years, and pairing them with a plain-vanilla S&P 500 position can boost your portfolio significantly.

One ETF that can do it is the iShares Semiconductor ETF (NASDAQ:SOXX).

Why SOXX pairs well with SPX

SOXX is a passively managed ETF that aims to track the ICE Semiconductor Index. It holds 35 U.S.-listed companies in the semiconductor sector and has been a major beneficiary of the chip stock boom. SOXX is up 143% over the past five years and has even outperformed the QQQ.

Will the performance last forever? Likely not. Chip stocks are cyclical, and corrections can be quite hideous when the pendulum swings the other way. But given that demand is continuously outstripping chip supply due to AI, a true 2022-esque cyclical downturn could be years away.

In the meantime, you could significantly amplify your gains.

If you bought SOXX and a low-cost S&P 500 ETF in August 2020 and split $20,000 among the two, you’d have $36,775.61 today. Only when you break down the gains do you realize how much SOXX would have contributed to those gains.

Over the past five years, BNY Mellon U.S. Large Cap Core Equity ETF (NYSEARCA:BKLC), which is a zero-fee indirect S&P 500 tracker, returned ~$5,899 on a $10k initial investment. SOXX has returned ~$10,876. If you extend the timeline to 10 years, the outperformance widens even more.

SOXX vs SMH, which one should you buy?

There are other semiconductor ETFs you can look at, namely the VanEck Semiconductor ETF (NASDAQ:SMH). SMH has returned 236.86% over the past five years, and it’s not a bad pick if you are very aggressive. However, 22.28% of SMH is Nvidia (NASDAQ:NVDA). If Nvidia misses or cuts its guidance once, that may be all it takes to ravage SMH’s advantage.

When it comes to SOXX, you get diverse exposure, with no holding exceeding 10%. The largest holding is Advanced Micro Devices (NASDAQ:AMD) at 9.78%, followed by NVDA at 8.75% and Broadcom (NASDAQ:AVGO) at 8%.

If AI bulls are right, we’re still early, and having broader exposure to the top AI chip stocks makes more sense. For example, if Nvidia starts losing ground to AMD over the coming years, you don’t have much to lose from it if you hold SOXX. With SMH, you’d be in the red.

SOXX comes with an expense ratio of 0.34%, or $34 per $10,000 invested. SMH is a tiny bit higher at 0.35%.

How to size the pair

It’s completely up to how much appetite you have for risk, but the average investor shouldn’t allocate more than 15-25% to SOXX as a satellite.

Assume SPX compounds at 9% and SOXX at 15% (its 10-year CAGR is 19.7%, but we haircut for cycle maturation). A 75/25 mix would deliver 10.5% annualized. This is an extra 150bps of return with only a modest uptick in volatility because the two assets still share significant correlation. This correlation will likely keep rising as semiconductor stocks constitute an increasing portion of the S&P 500 as they climb.

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