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

Launched on 09/28/2011, the State Street SPDR S&P Software & Services ETF (XSW) is a smart beta exchange traded fund offering 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.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide 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.

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 Investment Management, and has been able to amass over $491.1 million, which makes 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

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Annual operating expenses for XSW are 0.35%, which makes it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.00%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 96.5% of the portfolio, the fund has heaviest allocation to the Information Technology sector.

Looking at individual holdings, Rapid7 Inc (RPD) accounts for about 1.19% of total assets, followed by Amplitude Inc Class A (AMPL) and Netskope Inc Cl A (NTSK).

XSW's top 10 holdings account for about 11% of its total assets under management.

Performance and Risk

So far this year, XSW has gained about 7.91%, and it's up approximately 7% in the last one year (as of 09/03/2026). During this past 52-week period, the fund has traded between $135.97 and $210.31.

XSW has a beta of 1.17 and standard deviation of 26.90% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 133 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 $1.21 billion in assets, iShares Expanded Tech-Software Sector ETF has $14.79 billion. IGPT has an expense ratio of 0.56% and IGV changes 0.38%.

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

Boost Your Portfolio with Our Top ETF Insights

Zacks' exclusive Fund Newsletter delivers actionable information, top news and analysis, as well as top-performing ETFs, straight to your inbox every week.

Don’t miss out on this valuable resource. It’s free!

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research