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?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
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 $506.02 million, which makes it one of the average sized ETFs in the Technology ETFs. XSW, 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
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
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 0.10%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
XSW's heaviest allocation is in the Information Technology sector, which is about 95.7% of the portfolio.
Taking into account individual holdings, Porch Group Inc (PRCH) accounts for about 1.28% of the fund's total assets, followed by Microstrategy Inc Cl A (MSTR) and Nextnav Inc (NN).
The top 10 holdings account for about 9.75% of total assets under management.
Performance and Risk
Year-to-date, the SPDR S&P Software & Services ETF has lost about -3.77% so far, and is up roughly 24.96% over the last 12 months (as of 06/18/2025). XSW has traded between $141.65 and $204.72 in this past 52-week period.
XSW has a beta of 1.18 and standard deviation of 27.41% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 140 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 $454.94 million in assets, iShares Expanded Tech-Software Sector ETF has $11.92 billion. IGPT has an expense ratio of 0.58% and IGV changes 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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SPDR S&P Software & Services ETF (XSW): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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