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

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A smart beta exchange traded fund, the SPDR S&P Aerospace & Defense ETF (XAR - Free Report) debuted on 09/28/2011, and offers 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.

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

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.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

Because the fund has amassed over $2.06 billion, this makes it one of the larger ETFs in the Industrials ETFs. XAR is managed by State Street Global Advisors. Before fees and expenses, XAR 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for XAR are 0.35%, which makes it one of the least expensive products in the space.

The fund has a 12-month trailing dividend yield of 0.56%.

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.

XAR's heaviest allocation is in the Industrials sector, which is about 100% of the portfolio.

Taking into account individual holdings, Archer Aviation Inc A (ACHR - Free Report) accounts for about 4.10% of the fund's total assets, followed by Rtx Corp (RTX - Free Report) and Transdigm Group Inc (TDG - Free Report) .

Its top 10 holdings account for approximately 39.37% of XAR's total assets under management.

Performance and Risk

Year-to-date, the SPDR S&P Aerospace & Defense ETF has added roughly 1.19% so far, and is up about 19.88% over the last 12 months (as of 05/02/2024). XAR has traded between $109.60 and $141.87 in this past 52-week period.

The ETF has a beta of 1.05 and standard deviation of 21.65% for the trailing three-year period, making it a medium risk choice in the space. With about 34 holdings, it has more concentrated exposure than peers.

Alternatives

SPDR S&P Aerospace & Defense ETF is an excellent option for investors seeking to outperform the Industrials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

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 $3.10 billion in assets, iShares U.S. Aerospace & Defense ETF has $6.12 billion. PPA has an expense ratio of 0.58% and ITA charges 0.40%.

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.

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