Key Takeaways:
The Invesco Semiconductors ETF has doubled this year without owning a single share of the world's largest chip manufacturer.
The Invesco Semiconductors ETF (NYSEARCA:PSI) returned 102.37% from Dec. 31 through July 6, yet holds zero shares of Taiwan Semiconductor Manufacturing Co., the $2.34 trillion foundry that fabricates chips for Nvidia, AMD and Apple.
"PSI tracks a US-focused index, and TSM's ADR structure disqualifies it regardless of market cap," an Invesco spokesperson said, confirming the structural exclusion.
The fund's $1.995 billion portfolio spans 33 positions concentrated in chip designers and equipment makers. MaxLinear leads at 7.98% of net assets, followed by Advanced Micro Devices at 6.26%, Texas Instruments at 4.97%, Broadcom at 4.84% and Micron Technology at 4.67%. Capital equipment names KLA, Lam Research and Applied Materials each account for roughly 4% of the fund. Nvidia, the dominant AI accelerator supplier, carries just a 3.91% weight.
The exclusion means PSI investors captured none of TSM's 49% gain in 2026 — a $1.15 trillion market cap increase — yet still outperformed the broader semiconductor space. The question for allocators is whether a US-only chip designer basket can sustain its edge as AI infrastructure spending shifts from design wins to foundry capacity.
How a US-Focused Mandate Creates a TSM Blind Spot
PSI tracks a US-focused semiconductor index that screens for domestic exchange listings. TSM trades as an American depositary receipt on the New York Stock Exchange, but its primary listing in Taipei and its status as a foreign issuer exclude it from the index's eligibility criteria. The same rule that keeps TSM out also excludes ASML Holding, the Dutch lithography giant whose machines are essential for advanced chip production.
The result is a portfolio that owns the architects of the AI boom but none of the factories that build their chips. PSI's top 10 holdings include seven fabless designers and three US-based equipment suppliers — all beneficiaries of AI infrastructure spending, but none exposed to the foundry pricing power that has driven TSM's gross margins above 60 percent.
The Irony of Outperformance Without the Largest Player
TSM's 49% year-to-date gain pushed its market capitalization past $2.34 trillion, making it the most valuable semiconductor company by a wide margin. Yet PSI's 102% return more than doubled TSM's performance by concentrating in smaller, more volatile names that have benefited disproportionately from AI-related demand.
MaxLinear, PSI's largest holding at 7.98%, designs connectivity and analog chips for data center infrastructure. AMD, the second-largest position at 6.26%, has gained market share in AI accelerators and server processors. The fund's flat weighting across memory, analog and equipment names — rather than concentrating in a single mega-cap — spread the AI tailwind across the portfolio.
Over the past year, PSI returned 158.54%. The trailing week has been rougher, with the fund down 10.34% as the semiconductor sector cooled from recent highs. The VanEck Semiconductor ETF (SMH) fell below its 50-day moving average on Tuesday, signaling broad profit-taking across the space.
What the Exclusion Means for Risk and Returns
PSI's structural avoidance of TSM creates a concentrated bet on fabless designers and US-based equipment suppliers whose fortunes depend on a single foundry partner. TSMC fabricates the majority of advanced chips for Nvidia, AMD, Broadcom and Qualcomm — all names that appear in PSI's portfolio. Any disruption to TSMC's operations, whether from geopolitical tension around Taiwan or a cyclical downturn in foundry pricing, would ripple through nearly every holding in the fund.
Broader semiconductor ETFs that include TSM, such as the iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH), spread that risk across manufacturing as well as design. SOXX held roughly 12% in TSM as of its most recent filing, giving investors direct exposure to foundry economics.
PSI shares, trading at a price-to-earnings multiple in line with the semiconductor ETF peer group, have benefited from the market's willingness to pay for AI-related revenue growth regardless of manufacturing exposure. If the AI capex cycle decelerates or foundry pricing becomes a bottleneck, the fund's concentration in design-only names could amplify the downside.
This article is for informational purposes only and does not constitute investment advice.
