Targeted Chip Funds Outpace VanEck's SMH Despite 87.86% Annual Return

The semiconductor sector continues to deliver explosive growth, but broad-market indices are no longer the only path to outsized gains. Recent performance data reveals that targeted chip funds are now outperforming some of the most popular sector benchmarks.

According to a report from 24/7 Wall St, the VanEck Semiconductor ETF (SMH) recorded a substantial return of 87.86% over the trailing year as of August 26, 2026. While this figure represents a massive win for investors, three specific semiconductor funds—PSI, CHPS, and FTXL—managed to achieve even higher returns over the same period. This divergence suggests that while the general tide is lifting all boats, specific weighting strategies are capturing more value.

The Shift in AI Hardware Demand

For much of the recent bull run, the semiconductor industry has been propelled by an insatiable demand for AI-capable hardware. This surge was initially dominated by mega-cap giants, most notably NVIDIA, which served as the primary engine for many broad sector ETFs. Because funds like SMH are heavily weighted toward these industry leaders, their performance has been tightly coupled with the success of a few dominant players.

However, the market is currently undergoing a structural shift. The rally is broadening beyond the primary AI chip designers to include the critical infrastructure that supports them. This includes the companies responsible for high-bandwidth memory, specialized semiconductor manufacturing equipment, and mid-cap chip designers who provide niche components for the AI ecosystem.

Why Targeted Exposure Matters

This performance gap indicates that alpha is increasingly found through concentrated or differently weighted funds rather than broad indices. The outperformance of PSI, CHPS, and FTXL was driven specifically by higher exposure to these broadening areas—memory and equipment—rather than a sole reliance on mega-cap hardware.

For investors, this suggests a divergence in performance between different chip sub-sectors. As the AI build-out moves from the initial training phase to broader deployment, the value chain is shifting. The companies that build the machines that make the chips, or the memory that allows them to function, are now providing the marginal gains that push targeted funds past the broad benchmarks.

Watching the Sector Divergence

Moving forward, the key metric for semiconductor investors will be the continued rotation from mega-cap dominance to a more distributed growth model. While SMH remains a powerhouse for general sector exposure, the success of more specialized funds highlights a growing opportunity in the mid-cap and equipment spaces.

Market analysts will be watching to see if this broadening trend persists or if the sector returns to a winner-take-all dynamic led by the largest designers. For now, the data confirms that a more granular approach to the chip sector can yield superior results compared to the broad index.