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

Designed to provide broad exposure to the Industrials ETFs category of the market, the SPDR S&P Aerospace & Defense ETF (XAR) is a smart beta exchange traded fund launched on 09/28/2011.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

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.

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.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by State Street Global Advisors, and has been able to amass over $3.79 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

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.

The fund has a 12-month trailing dividend yield of 0.51%.

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.

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) accounts for about 5.15% of the fund's total assets, followed by Aerovironment Inc (AVAV) and Curtiss Wright Corp (CW).

XAR's top 10 holdings account for about 45.28% of its total assets under management.

Performance and Risk

So far this year, XAR has gained about 31.34%, and it's up approximately 46.4% in the last one year (as of 07/17/2025). During this past 52-week period, the fund has traded between $140.71 and $217.46.

The fund has a beta of 1.08 and standard deviation of 21.19% for the trailing three-year period, which makes XAR a medium risk choice in this particular space. With about 38 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) tracks SPADE Defense Index and the iShares U.S. Aerospace & Defense ETF (ITA) tracks Dow Jones U.S. Select Aerospace & Defense Index. Invesco Aerospace & Defense ETF has $5.96 billion in assets, iShares U.S. Aerospace & Defense ETF has $8.73 billion. PPA has an expense ratio of 0.57% and ITA changes 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

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This article originally published on Zacks Investment Research (zacks.com).

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