Is Invesco Dynamic Software ETF (PSJ) a Strong ETF Right Now?

The Invesco Dynamic Software ETF (PSJ) made its debut on 06/23/2005, and is a smart beta exchange traded fund that provides broad exposure to the Technology ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

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

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

PSJ is managed by Invesco, and this fund has amassed over $446.96 million, which makes it one of the average sized ETFs in the Technology ETFs. Before fees and expenses, this particular fund seeks to match the performance of the Dynamic Software Intellidex Index.

The index is comprised of stocks of software companies. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.56%.

PSJ's 12-month trailing dividend yield is 0.12%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For PSJ, it has heaviest allocation in the Information Technology sector --about 51.70% of the portfolio --while Telecom and Healthcare round out the top three.

Taking into account individual holdings, Hubspot Inc (HUBS) accounts for about 6.16% of the fund's total assets, followed by Intuit Inc (INTU) and Microsoft Corp (MSFT).

Its top 10 holdings account for approximately 49.97% of PSJ's total assets under management.

Performance and Risk

The ETF has lost about -1.89% and is up about 13.18% so far this year and in the past one year (as of 11/19/2021), respectively. PSJ has traded between $136.56 and $185.30 during this last 52-week period.

The ETF has a beta of 0.97 and standard deviation of 28.14% for the trailing three-year period, making it a high risk choice in the space. With about 30 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Dynamic Software ETF is a reasonable option for investors seeking to outperform the Technology ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

SPDR S&P Software & Services ETF (XSW) tracks S&P Software & Services Select Industry Index and the iShares Expanded TechSoftware Sector ETF (IGV) tracks S&P North American Technology-Software Index. SPDR S&P Software & Services ETF has $574.96 million in assets, iShares Expanded TechSoftware Sector ETF has $6.24 billion. XSW has an expense ratio of 0.35% 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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.