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

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Designed to provide broad exposure to the Technology ETFs category of the market, the Invesco Dynamic Software ETF is a smart beta exchange traded fund launched on 06/23/2005.

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.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

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 Invesco, and has been able to amass over $213 million, which makes it one of the average sized ETFs in the Technology ETFs. Before fees and expenses, PSJ 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

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 PSJ are 0.56%, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0.74%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. 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 68.10% of the portfolio. Telecom and Healthcare round out the top three.

Looking at individual holdings, Roblox Corp (RBLX - Free Report) accounts for about 6.33% of total assets, followed by Datadog Inc (DDOG - Free Report) and Cadence Design Systems Inc (CDNS - Free Report) .

The top 10 holdings account for about 48.46% of total assets under management.

Performance and Risk

The ETF has lost about -23.68% so far this year and is down about -35.51% in the last one year (as of 07/26/2022). In the past 52-week period, it has traded between $86.93 and $160.03.

PSJ has a beta of 1.02 and standard deviation of 31.04% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 31 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Dynamic Software 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.

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 $221.52 million in assets, iShares Expanded TechSoftware Sector ETF has $4.60 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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