Is SPDR S&P Software & Services ETF (XSW) a Strong ETF Right Now?

Making its debut on 09/28/2011, smart beta exchange traded fund SPDR S&P Software & Services ETF (XSW) provides investors broad exposure to the Technology ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

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.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by State Street Global Advisors. XSW has been able to amass assets over $411.24 million, making it one of the average sized ETFs in the Technology ETFs. This particular fund, before fees and expenses, seeks to match the performance of the S&P Software & Services Select Industry Index.

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.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.35% for XSW, making it one of the least expensive products in the space.

XSW's 12-month trailing dividend yield is 0.12%.

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.

XSW's heaviest allocation is in the Information Technology sector, which is about 95.70% of the portfolio.

When you look at individual holdings, Quantum Computing Inc (QUBT) accounts for about 1.13% of the fund's total assets, followed by D Wave Quantum Inc (QBTS) and Nextnav Inc (NN).

The top 10 holdings account for about 8.71% of total assets under management.

Performance and Risk

The ETF has lost about -20.36% and is up roughly 4.99% so far this year and in the past one year (as of 04/17/2025), respectively. XSW has traded between $141.27 and $204.72 during this last 52-week period.

XSW has a beta of 1.20 and standard deviation of 29.17% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 144 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Software & Services 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.

Invesco AI and Next Gen Software ETF (IGPT) tracks STOXX WORLD AC NEXGEN SOFTWARE DEV ID and the iShares Expanded Tech-Software Sector ETF (IGV) tracks S&P North American Technology-Software Index. Invesco AI and Next Gen Software ETF has $349.60 million in assets, iShares Expanded Tech-Software Sector ETF has $9.58 billion. IGPT has an expense ratio of 0.58% and IGV charges 0.41%.

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

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