Launched on September 28, 2011, the State Street SPDR S&P Software & Services ETF (XSW) is a smart beta exchange-traded fund that provides broad exposure to the Technology ETFs market category.
The ETF industry has long been dominated by products based on market capitalization-weighted indexes, a strategy designed to reflect the market or a particular market segment.
Because market cap-weighted indexes provide a cheap, easy, and transparent way to replicate market returns, they work well for investors who believe in market efficiency.
However, there are investors who think it is possible to beat the market with good stock selection; this group likely invests in a different class of funds, known as smart beta, which follow non-cap-weighted strategies.
These indices attempt to select stocks that offer better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
Methodologies such as equal weighting, one of the simplest options out there, fundamental weighting and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
XSW is managed by State Street Investment Management and this fund has amassed over $444.12 million, making it one of the mid-sized ETFs among technology ETFs. This specific 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 subsector portion of the S&P Total Stock Market Index. The S&P TMI tracks all 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 is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamental factors are the same.
With one of the least expensive products on the market, this ETF has annual operating expenses of 0.35%.
It has a 12-month rolling dividend yield of 0.06%.
Most ETFs are highly transparent products and disclose their positions daily. ETFs also provide diversified exposure, minimizing risk on individual stocks, although it is still important for investors to research a fund’s investments.
The fund represents 97% of the portfolio and has the largest allocation to the information technology sector.
