Semiconductor Photonics ETF (EUV)

The Semiconductor Photonics ETF (EUV) tracks publicly traded companies engaged in extreme ultraviolet lithography — a technology that has become essential to advanced semiconductor manufacturing. The fund concentrates on equipment makers, material suppliers, and designers working in the EUV ecosystem, betting on the ongoing demand for more powerful and smaller chips.

The fund’s creation in recent years reflects a broader realisation: the boundary between computing capability and the machines that build chips has narrowed. As device geometries have shrunk toward single nanometres, older lithography techniques hit physical limits. EUV uses a shorter wavelength of light — 13.5 nanometres — to etch finer patterns on silicon wafers than older extreme ultraviolet or deep ultraviolet methods could manage. That shift is not a smooth transition. It requires entirely new toolsets, optics, materials, and expertise. Companies that lead in EUV supply face decades of structural demand if chip designers keep pushing toward smaller process nodes.

The bottleneck that drives valuations

EUV is expensive. A single lithography tool costs tens of millions of dollars, and fabs (semiconductor manufacturing plants) often require multiple machines running in sequence. Only a handful of equipment makers — principally ASML in the Netherlands — dominate supply. This creates a moat. Fabs cannot easily switch suppliers mid-transition because the engineering and software integration are bespoke. That stickiness, combined with the capital intensity on the buyer side and the multi-year development cycles on the supplier side, explains why the fund’s holdings command premium valuations.

The ETF’s concentration is high. Its largest holdings typically include the lithography-equipment leaders, the materials and chemicals used in the EUV process, and the specialist optics makers who supply mirrors and lenses. The fund assumes that semiconductor production will remain concentrated on trailing-edge and leading-edge processes — a reasonable bet, given that the most advanced chips (processors for data centres, artificial intelligence accelerators, leading smartphones) still command the highest prices and drive the most innovation spending.

Exposures and risks peculiar to this theme

One distinctive exposure is geographic concentration. Much of the EUV supply chain sits in Europe, East Asia, and a handful of U.S. locations. Geopolitical tension around Taiwan and China, export controls on semiconductor equipment, and supply-chain disruptions ripple directly through the fund’s holdings. A few holdings depend on a single major customer (a large integrated device manufacturer or foundry), creating buyer concentration risk even if the supplier is globally dominant.

The fund also carries a technology risk. EUV is the current standard for sub-7-nanometre nodes, but the semiconductor industry repeatedly moves to new physics. If the industry were to shift to a different wavelength, a different lithography approach altogether (such as imprint lithography or computational approaches), or a different path to smaller features, the value of the current EUV ecosystem could face headwinds. That is not imminent — EUV will likely remain central for at least a decade — but it is a structural possibility that comes with any technology-dependent fund.

Finally, the fund is vulnerable to cyclical downturns in chip spending. Fabs operate with multi-year visibility and long lead times on equipment, but major recessions or over-capacity in the industry can cause them to defer new tool purchases or cancel orders entirely. The fund’s valuations already reflect some premium for the structural nature of EUV demand, so a cyclical shock would compress multiples sharply.

How to research the fund

The prospectus and fact sheet lay out the fund’s exact holdings, weighting, and expense ratio. Compare the fund’s one-year and five-year returns to the broader semiconductor equipment index or the Nasdaq 100 to assess whether the EUV concentration has added or subtracted value. Review filings by the largest holdings (such as ASML’s annual reports and earnings calls) to understand the health of EUV orders, fab capacity spending, and the competitive outlook. Watch for any regulatory changes around semiconductor export controls, which can create unexpected volatility. The semiconductor industry’s ability to sustain advanced manufacturing capacity in North America and Europe (versus concentration in Taiwan) is another important macro variable that shapes demand for EUV equipment.