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Should You Invest in the SPDR S&P Software & Services ETF (XSW)?

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The SPDR S&P Software & Services ETF (XSW - Free Report) was launched on 09/28/2011, and is a passively managed exchange traded fund designed to offer broad exposure to the Technology - Software segment of the equity market.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Technology - Software is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 12, placing it in bottom 25%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $565.60 million, making it one of the average sized ETFs attempting to match the performance of the Technology - Software segment of the equity market. XSW seeks to match the performance of the S&P Software & Services Select Industry Index before fees and expenses.

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.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

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 0.03%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. 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 96.80% of the portfolio.

Looking at individual holdings, Asana Inc. Class A (ASAN - Free Report) accounts for about 0.77% of total assets, followed by Sykes Enterprises Incorporated and Trade Desk Inc. Class A (TTD - Free Report) .

The top 10 holdings account for about 6.50% of total assets under management.

Performance and Risk

So far this year, XSW return is roughly 12.53%, and is up about 40.13% in the last one year (as of 08/23/2021). During this past 52-week period, the fund has traded between $114.78 and $175.77.

The ETF has a beta of 1.16 and standard deviation of 27.88% for the trailing three-year period, making it a high risk choice in the space. With about 186 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Software & Services 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, XSW is a reasonable option for those seeking exposure to the Technology ETFs area of the market. Investors might also want to consider some other ETF options in the space.

Invesco Dynamic Software ETF (PSJ - Free Report) tracks Dynamic Software Intellidex Index and the iShares Expanded TechSoftware Sector ETF (IGV - Free Report) tracks S&P North American Technology-Software Index. Invesco Dynamic Software ETF has $523.17 million in assets, iShares Expanded TechSoftware Sector ETF has $5.48 billion. PSJ has an expense ratio of 0.56% and IGV charges 0.43%.

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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