Warren Buffett has long touted the merits of investing in low-cost index funds tracking the S&P 500. The idea behind the recommendation is that the S&P 500 index fund will track a wider market, providing low-risk average returns with low costs.
However, there are also sector-specific exchange-traded funds (ETFs) that offer industry-specific risks. While Buffett is more modest in choosing a specific department to win, the technology field seems to be excellent in the long run.
After all, technology has entered more and more of our daily lives through smartphones, cloud computing and now artificial intelligence. In recent years, the industry has high technical and capital barriers, and often produces high profit margins.
In the field of technology, one sub-sector outperforms all other sub-sectors.
The total S&P 500 has performed well over the past 10 years, with an age of 10.7%. It was a very great decade, outperforming the long-term average of the market.
Many of these returns are powered by technology companies. QQQ TrustETFs designed to reflect the Nasdaq 100 index are themselves agents in the technology sector, with annual returns of 16.7% over the past decade.
But in technology, which sub-sector has better performance? semiconductor. Over the past 10 years, the semiconductor sector has ishales semiconductor ETF (NASDAQ: SOXX)increasing complexity at an annualized rate of 20%.
Even at the 19.9% ratio of Warren Buffett conglomerate, this level of compounding is high Berkshire HathawayComplex - Although Berkshire has grown impressively at an average rate over 60 years!
What is the difference between a 20% interest rate and a 10.7% interest rate? At these levels, only $500 per month to the iShares semiconductor ETF will increase to an astonishing $155,906-2.6 times the amount of donations. If you invested in the S&P 500 S&P 500 over a similar length of time, it would cost only $98,941.
Semiconductors are known for their crazy periodicity, which is a little right. But every year, more and more chips are entering our PCs, phones, household appliances and cars. Combined, game-changing technologies such as the Internet, cloud computing and more recently artificial intelligence have created entirely new industries and demand pools.
So, why is it so periodic? Because semiconductors are hardware, they are prone to prosperity and bust "bulls". When customers are anxious to buy in good times, the bull wip effect occurs, only freezing and burning their inventory when it is difficult. However, considering that all products and services are in all products and services, the overall trend has been over 10 years in the long run, and the overall trend is obviously upward and correct, with a higher growth rate than GDP.
The industry is also known for its fierce competition. While this is true, over the past 20 years, the wave of mergers among large players in the industry has often reduced competition among a few players in each industry segment. This helps the industry increase profit margins relative to the past, resulting in profit growth.
Here are the top 10 holdings of Ishares Semiconductor ETF:
| company | % of Ishares Semiconductor ETF Assets |
|---|---|
| Broadcom | 8.7% |
| Nvidia | 7.9% |
| Texas Instruments | 7.4% |
| Advanced Micro Devices | 7.1% |
| Qualcomm | 6.8% |
| KLA Company | 4.5% |
| Application materials | 4.3% |
| Overall power system | 4.3% |
| Lin Research | 4.2% |
| NXP semiconductor | 3.9% |
Some would say that for the performance of iShares semiconductor ETFs will be a range for the next decade. After all, ten years ago, the cloud computing revolution only achieved critical mass, while the artificial intelligence revolution did not happen in the 2022 Chatgpt release.
However, in the long run, Ishares semiconductor ETF will continue to outperform performance, which seems to be a good choice. As long as technological innovation continues to develop, humans will continue to use technology to improve their lives, save time and money, and improve connectivity. This means more semiconductors. As innovations led by semiconductors also create entirely new markets (such as AI), the semiconductor sector should continue to surpass GDP.
Given the large amount of capital and technical resources required for competition, I also hope for relatively stable competition and margin maintenance. There is no doubt that in the next few years, there will be fierce competition for AI supreme competition. However, the advantage of having an ETF is that it will capture the winner and assign it to losers over time.
Charlie Munger, a late-term partner at Warren Buffett, once said that in the long run, the returns of stocks tend to reflect their return on capital (ROIC). Given today's leading chip designers, manufacturers and equipment companies' widespread investment in International Electric, just like the last stock, the next decade will also seem to be positive, just like the last stock.
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Billy Duberstein has positions in Applied Materials, Berkshire Hathaway, Broadcom, KLA, LAM Research and Texas Instruments. Motley fools are in the position and recommends advanced micro-device, Applied Materials, Berkshire Hathaway, LAM Research, Nvidia, Qualcomm, Texas Instruments and Ishares Trust -ishares -Ishares Semiciconductor ETF. Motley Fool recommends Broadcom, monolithic power systems and NXP semiconductors. Motley Fool has a disclosure policy.
Forgot Warren Buffett's favorite index. This AI ETF could turn just $500 into $156,000 per month for 10 years. Originally published by Motley Fool