The Fund Provides Access to the Core of Modern Tech
The 21st Century tech revolution would not be possible without an invention of the 20th Century: semiconductors, also called microchips. They make billions of flawless calculations per second and store nearly infinite data – all on a space smaller than your fingernail. Just a few large companies make semiconductors; they are well positioned to reap substantial profits.
It’s no exaggeration that the rise of tech is becoming exponential. Research from Huawei / Oxford Economics sees its share of the global economy (measured by gross domestic product) rising from 15% in 2006 to 24% in 2025. Thus, the growth perspectives of the Semiconductor ETF by VanEck are excellent. We already find this around us, for instance:
- Artificial intelligence in all sectors (eg medical research and diagnostics, self-driving cars, robotics)
- 5G mobile communication (from wireless broadband to wireless TV)
- 3D printing
- The Internet of Things
- Cryptocurrencies (notably Bitcoin)
- 3D video gaming.
Several substantial barriers to entry protect semiconductor manufacturers, shielding their profit margins:
- Creating a new semiconductor takes huge financial investments, if only for lithography machines costing around USD 100 million.
- The thousands of highly-skilled, highly-paid engineers needed to research, design and make semiconductors cannot be recruited overnight.
- Large numbers of patents protect the intellectual property behind semiconductors.
Such ‘economic moats’ enshrine competitive advantages. That’s why semiconductor pioneers like Texas Instruments (invented the world’s first integrated circuit in 1958) and Intel (created the first commercial chip in 1971) are still leading players. This is an interesting factor to reflect upon when considering an investment in a Semiconductor ETF.
When it comes to electronics, semiconductor chips make all the difference. Advances in technology depend on advances in semiconductors. For instance, the annual fanfare of new iPhone models would not be possible without relentless improvements in semiconductors. Now new semiconductors are among the vital ingredients of the fourth industrial revolution. As such, they and consequently this Fund can claim their share of its future profits.
