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Is SPDR S&P Software & Services ETF (XSW) a Strong ETF Right Now?

Smart Beta ETF report for XSW

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This story originally appeared on Zacks

Making its debut on 09/28/2011, smart beta exchange traded fund SPDR S&P Software & Services ETF (XSW) provides investors broad exposure to the Technology ETFs category of the market.

- Zacks

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

XSW is managed by State Street Global Advisors, and this fund has amassed over $385.82 million, which makes it one of the average sized ETFs in the Technology ETFs. This particular fund, before fees and expenses, seeks to match the performance of the S&P Software & Services Select Industry Index.

The S&P Software & Services Select Industry Index represents the software sub-industry portion of the S&P Total Stock Market Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Global Select Market. The Software Index is a modified equal weight index.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Operating expenses on an annual basis are 0.35% for this ETF, which makes it one of the least expensive products in the space.

The fund has a 12-month trailing dividend yield of 0.17%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 95.60% of the portfolio, the fund has heaviest allocation to the Information Technology sector.

Taking into account individual holdings, Cleanspark Inc. (CLSK) accounts for about 0.88% of the fund's total assets, followed by Veritone Inc. (VERI) and Marathon Digital Holdings Inc (MARA).

The top 10 holdings account for about 7.6% of total assets under management.

Performance and Risk

The ETF has added about 5.77% so far this year and it's up approximately 4.35% in the last one year (as of 12/21/2021). In the past 52-week period, it has traded between $150.10 and $186.85.

The fund has a beta of 1.16 and standard deviation of 27.41% for the trailing three-year period, which makes XSW a high risk choice in this particular space. With about 188 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Software & Services ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco Dynamic Software ETF (PSJ) tracks Dynamic Software Intellidex Index and the iShares Expanded TechSoftware Sector ETF (IGV) tracks S&P North American Technology-Software Index. Invesco Dynamic Software ETF has $359.36 million in assets, iShares Expanded TechSoftware Sector ETF has $5.83 billion. PSJ has an expense ratio of 0.56% and IGV charges 0.43%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Technology ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.





Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 

SPDR S&P Software & Services ETF (XSW): ETF Research Reports

 

Marathon Digital Holdings, Inc. (MARA): Free Stock Analysis Report

 

iShares Expanded TechSoftware Sector ETF (IGV): ETF Research Reports

 

Invesco Dynamic Software ETF (PSJ): ETF Research Reports

 

Veritone, Inc. (VERI): Free Stock Analysis Report

 

Cleanspark, Inc. (CLSK): Free Stock Analysis Report

 

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