The SPDR S&P Software & Services ETF (XSW) made its debut on 09/28/2011, 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?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
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.
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.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by State Street Global Advisors. XSW has been able to amass assets over $590.12 million, making 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
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are 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 0.07%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
For XSW, it has heaviest allocation in the Information Technology sector --about 96.60% of the portfolio.
Taking into account individual holdings, D Wave Quantum Inc (QBTS) accounts for about 1.68% of the fund's total assets, followed by Soundhound Ai Inc A (SOUN) and Grid Dynamics Holdings Inc (GDYN).
The top 10 holdings account for about 9.21% of total assets under management.
Performance and Risk
Year-to-date, the SPDR S&P Software & Services ETF has added about 4.34% so far, and is up roughly 31.47% over the last 12 months (as of 02/14/2025). XSW has traded between $141.27 and $204.72 in this past 52-week period.
XSW has a beta of 1.16 and standard deviation of 28.44% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 148 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 AI and Next Gen Software ETF (IGPT) tracks STOXX WORLD AC NEXGEN SOFTWARE DEV ID and the iShares Expanded Tech-Software Sector ETF (IGV) tracks S&P North American Technology-Software Index. Invesco AI and Next Gen Software ETF has $456.23 million in assets, iShares Expanded Tech-Software Sector ETF has $11.72 billion. IGPT has an expense ratio of 0.58% and IGV charges 0.41%.
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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Get it free >>SPDR S&P Software & Services ETF (XSW): ETF Research Reports
iShares Expanded Tech-Software Sector ETF (IGV): ETF Research Reports
Grid Dynamics Holdings, Inc. (GDYN) : Free Stock Analysis Report
SoundHound AI, Inc. (SOUN) : Free Stock Analysis Report
D-Wave Quantum Inc. (QBTS) : Free Stock Analysis Report
Invesco AI and Next Gen Software ETF (IGPT): ETF Research Reports
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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.
