Should You Invest in the SPDR S&P Aerospace & Defense ETF (XAR)?

Designed to provide broad exposure to the Industrials - Aerospace & Defense segment of the equity market, the SPDR S&P Aerospace & Defense ETF (XAR) is a passively managed exchange traded fund launched on 09/28/2011.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Industrials - Aerospace & Defense is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 13, placing it in bottom 19%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $1.63 billion, making it one of the larger ETFs attempting to match the performance of the Industrials - Aerospace & Defense segment of the equity market. XAR seeks to match the performance of the S&P Aerospace & Defense Select Industry Index before fees and expenses.

The S&P Aerospace & Defense Select Industry Index represents the aerospace & defense 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 Aerospace & Defense Index is a modified equal weight index.

Costs

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 counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.35%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.40%.

Sector Exposure and Top Holdings

ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Industrials sector--about 100% of the portfolio.

Looking at individual holdings, Mercury Systems Inc. (MRCY) accounts for about 5.59% of total assets, followed by Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC).

The top 10 holdings account for about 46.24% of total assets under management.

Performance and Risk

So far this year, XAR has lost about -4.07%, and is down about -12.35% in the last one year (as of 05/02/2022). During this past 52-week period, the fund has traded between $107.27 and $136.44.

The ETF has a beta of 1.09 and standard deviation of 31.39% for the trailing three-year period, making it a medium risk choice in the space. With about 33 holdings, it has more concentrated exposure than peers.

Alternatives

SPDR S&P Aerospace & Defense ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XAR is a sufficient option for those seeking exposure to the Industrials ETFs area of the market. Investors might also want to consider some other ETF options in the space.

Invesco Aerospace & Defense ETF (PPA) tracks SPADE Defense Index and the iShares U.S. Aerospace & Defense ETF (ITA) tracks Dow Jones U.S. Select Aerospace & Defense Index. Invesco Aerospace & Defense ETF has $1.45 billion in assets, iShares U.S. Aerospace & Defense ETF has $3.69 billion. PPA has an expense ratio of 0.61% and ITA charges 0.42%.

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 key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.

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