A semiconductor device has a substrate and a semiconductor component disposed over the substrate. A discrete electrical device can be disposed over the substrate. An encapsulant is deposited over the substrate and semiconductor component. A ferromagnetic material is disposed over the encapsulant. The ferromagnetic material includes one or more ferrite type materials or other material having a crystalline structure exhibiting ferromagnetic properties. The ferromagnetic material includes a ferromagnetic film with a polyethylene terephthalate layer, ferrite layer, and adhesive layer. The ferromagnetic film is provided from the sheet of ferromagnetic films. A shielding layer is formed over the ferromagnetic material and around the semiconductor component. The ferromagnetic material provides magnetic shielding to reduce the influence of magnetic flux fields on the semiconductor die over all frequency bands, including low-frequency interference, by forming a low reluctance magnetic flux loop to redirect the magnetic flux fields away from the semiconductor die.