A smart beta exchange traded fund, the State Street SPDR S&P Software & Services ETF (XSW) debuted on 09/28/2011, and offers broad exposure to the Technology ETFs category of the market.
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.
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.
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.
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
The fund is managed by State Street Investment Management. XSW has been able to amass assets over $351.6 million, making it one of the average sized ETFs in the Technology ETFs. Before fees and expenses, this particular fund 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
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Annual operating expenses for XSW 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 0.08%.
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.
Representing 97.2% of the portfolio, the fund has heaviest allocation to the Information Technology sector.
When you look at individual holdings, Adeia Inc (ADEA) accounts for about 1.22% of the fund's total assets, followed by Onestream Inc (OS) and Daily Journal Corp (DJCO).
The top 10 holdings account for about 10.38% of total assets under management.
Performance and Risk
The ETF has lost about -20.16% and is down about -21.45% so far this year and in the past one year (as of 02/23/2026), respectively. XSW has traded between $141.65 and $205.24 during this last 52-week period.
XSW has a beta of 1.14 and standard deviation of 24.99% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 142 holdings, it effectively diversifies company-specific risk .
Alternatives
State Street 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 $711.12 million in assets, iShares Expanded Tech-Software Sector ETF has $7.63 billion. IGPT has an expense ratio of 0.56% and IGV changes 0.39%.
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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State Street SPDR S&P Software & Services ETF (XSW): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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