Back to top

Image: Bigstock

Is SPDR S&P Aerospace & Defense ETF (XAR) a Strong ETF Right Now?

Read MoreHide Full Article

Making its debut on 09/28/2011, smart beta exchange traded fund SPDR S&P Aerospace & Defense ETF (XAR - Free Report) provides investors broad exposure to the Industrials 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.

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.

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.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is managed by State Street Global Advisors, and has been able to amass over $1.37 billion, which makes it one of the larger ETFs in the Industrials ETFs. Before fees and expenses, this particular fund seeks to match the performance of the S&P Aerospace & Defense Select Industry Index.

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.

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 one of the least expensive products in the space, this ETF has annual operating expenses of 0.35%.

It's 12-month trailing dividend yield comes in at 0.41%.

Sector Exposure and Top Holdings

ETFs offer 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.

For XAR, it has heaviest allocation in the Industrials sector --about 100% of the portfolio.

Taking into account individual holdings, Mercury Systems Inc. (MRCY - Free Report) accounts for about 5.59% of the fund's total assets, followed by Lockheed Martin Corporation (LMT - Free Report) and Northrop Grumman Corporation (NOC - Free Report) .

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

Performance and Risk

The ETF has lost about -6.76% so far this year and is down about -15.25% in the last one year (as of 05/31/2022). In the past 52-week period, it has traded between $101.85 and $136.44.

XAR has a beta of 1.09 and standard deviation of 31.96% for the trailing three-year period, which makes the fund 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 is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Invesco Aerospace & Defense ETF (PPA - Free Report) tracks SPADE Defense Index and the iShares U.S. Aerospace & Defense ETF (ITA - Free Report) tracks Dow Jones U.S. Select Aerospace & Defense Index. Invesco Aerospace & Defense ETF has $1.30 billion in assets, iShares U.S. Aerospace & Defense ETF has $3.77 billion. PPA has an expense ratio of 0.61% and ITA charges 0.42%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials 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.

Published in