Semiconductor stocks are on a tear.
The SMH semiconductor ETF and SOXX iShares semiconductor ETF have both rallied 18 percent so far this year, tracking for their best quarters since September 2016. The XSD S&P semiconductor ETF has done even better, racing more than 20 percent higher for 2019.
Todd Rosenbluth, director of ETF and mutual fund research at CFRA, said whether you invest in the SMH, SOXX or XSD ETFs comes down to market cap.
"You really have to determine whether or not you like the large-cap, mega-cap companies," Rosenbluth told CNBC's "ETF Edge" on Wednesday. "Intel is the [14.5 percent] position in the SMH, hefty weighting again in the SOXX product, whereas it's more of a 2 or 3 percent weighting within the XSD."
The SOXX and SMH ETFs are market-cap weighted meaning their larger holdings' performances hold more influence, while the XSD ETF is equal weight.
The five largest holdings in the SMH – Intel, Taiwan Semiconductor, Texas Instruments, Nvidia and Qualcomm – make up 42 percent of the SMH ETF. By comparison, XSD components have individual weightings of less than 4 percent.
"If you think that small caps are going to do better in the semis space as they've done at the start of this year then XSD from State Street is a better way of going," Rosenbluth said.
Small caps should continue to drive further upside for the XSD, according to Kim Arthur, founder and CEO of Main Management.
"This year has been a cyclical risk-on rally so small-cap growth is leading every asset class year to date for the U.S. side so the XSD gets you clearly that smaller-cap exposure," Arthur said Wednesday on "ETF Edge." "If you look on a valuation basis, it's still a couple multiple points below its historic valuation on a forward basis so there's probably still some more room to run for that."
The XSD ETF trades at 17 times forward earnings, higher than the nearly 15 times multiple for the SOXX and SMH ETFs.
The XSD's top components include Marvell Technology, Qorvo, Cypress Semiconductor, Integrated Device Technology and Texas Instruments.
