Launched on 06/23/2005, the Invesco Dynamic Software ETF (PSJ) is a smart beta exchange traded fund offering 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.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
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.
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.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
Managed by Invesco, PSJ has amassed assets over $206.12 million, making 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 Dynamic Software Intellidex 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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.56% for this ETF, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.13%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Information Technology sector - about 53.40% of the portfolio. Telecom and Industrials round out the top three.
Taking into account individual holdings, Roblox Corp (RBLX) accounts for about 5.88% of the fund's total assets, followed by Fortinet Inc (FTNT) and Activision Blizzard Inc (ATVI).
Its top 10 holdings account for approximately 48.72% of PSJ's total assets under management.
Performance and Risk
So far this year, PSJ has added roughly 24.35%, and was up about 24.26% in the last one year (as of 07/14/2023). During this past 52-week period, the fund has traded between $87.96 and $113.15.
The fund has a beta of 0.99 and standard deviation of 28.11% for the trailing three-year period, which makes PSJ a high risk choice in this particular space. With about 32 holdings, it has more concentrated exposure than peers.
Alternatives
Invesco Dynamic Software 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.
SPDR S&P Software & Services ETF (XSW) tracks S&P Software & Services Select Industry Index and the iShares Expanded Tech-Software Sector ETF (IGV) tracks S&P North American Technology-Software Index. SPDR S&P Software & Services ETF has $327.51 million in assets, iShares Expanded Tech-Software Sector ETF has $6.43 billion. XSW has an expense ratio of 0.35% and IGV charges 0.40%.
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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Invesco Dynamic Software ETF (PSJ): ETF Research Reports
Activision Blizzard, Inc (ATVI) : Free Stock Analysis Report
Fortinet, Inc. (FTNT) : Free Stock Analysis Report
SPDR S&P Software & Services ETF (XSW): ETF Research Reports
iShares Expanded Tech-Software Sector ETF (IGV): ETF Research Reports
Roblox Corporation (RBLX) : Free Stock Analysis Report
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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.
