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

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Making its debut on 06/23/2005, smart beta exchange traded fund Invesco Dynamic Software ETF provides investors broad exposure to the Technology ETFs category of the market.

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.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option 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

The fund is managed by Invesco. PSJ has been able to amass assets over $273.95 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

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.

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

The fund has a 12-month trailing dividend yield of 7.12%.

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.

This ETF has heaviest allocation in the Information Technology sector - about 52.90% of the portfolio. Telecom and Healthcare round out the top three.

Looking at individual holdings, Hubspot Inc (HUBS - Free Report) accounts for about 6.16% of total assets, followed by Intuit Inc (INTU - Free Report) and Microsoft Corp (MSFT - Free Report) .

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

Performance and Risk

The ETF has lost about -11.82% and is down about -26.12% so far this year and in the past one year (as of 03/23/2022), respectively. PSJ has traded between $100.03 and $169.83 during this last 52-week period.

PSJ has a beta of 1.01 and standard deviation of 29.40% for the trailing three-year period, which makes the fund 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 - Free Report) tracks S&P Software & Services Select Industry Index and the iShares Expanded TechSoftware Sector ETF (IGV - Free Report) tracks S&P North American Technology-Software Index. SPDR S&P Software & Services ETF has $322.05 million in assets, iShares Expanded TechSoftware Sector ETF has $5.65 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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