Is SPDR S&P Aerospace & Defense ETF (XAR) a Strong ETF Right Now?

Zacks Equity Research
·4-min read

Designed to provide broad exposure to the Industrials ETFs category of the market, the SPDR S&P Aerospace & Defense ETF (XAR) is a smart beta exchange traded fund launched on 09/28/2011.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

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.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track 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.

Methodologies like 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.

Fund Sponsor & Index

Because the fund has amassed over $2.13 billion, this makes it one of the largest ETFs in the Industrials ETFs. XAR is managed by State Street Global Advisors. XAR seeks to match the performance of the S&P Aerospace & Defense Select Industry Index before fees and expenses.

The S&P Aerospace & Defense Select Industry Index represents the aerospace & defense 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 Aerospace & Defense 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 XAR are 0.35%, which makes it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.56%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

For XAR, it has heaviest allocation in the Industrials sector --about 100% of the portfolio.

Taking into account individual holdings, Aerovironment Inc (AVAV) accounts for about 4.98% of the fund's total assets, followed by Woodward Inc (WWD) and Heico Corp (HEI).

XAR's top 10 holdings account for about 44.2% of its total assets under management.

Performance and Risk

Year-to-date, the SPDR S&P Aerospace & Defense ETF return is roughly 4.31% so far, and is up about 16.60% over the last 12 months (as of 07/05/2024). XAR has traded between $109.60 and $144.92 in this past 52-week period.

XAR has a beta of 1.07 and standard deviation of 21.40% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 34 holdings, it has more concentrated exposure than peers.

Alternatives

SPDR S&P Aerospace & Defense ETF is an excellent option for investors seeking to outperform the Industrials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco Aerospace & Defense ETF (PPA) tracks SPADE Defense Index and the iShares U.S. Aerospace & Defense ETF (ITA) tracks Dow Jones U.S. Select Aerospace & Defense Index. Invesco Aerospace & Defense ETF has $3.33 billion in assets, iShares U.S. Aerospace & Defense ETF has $6.18 billion. PPA has an expense ratio of 0.58% and ITA charges 0.40%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials 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.

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

SPDR S&P Aerospace & Defense ETF (XAR): ETF Research Reports

AeroVironment, Inc. (AVAV) : Free Stock Analysis Report

Woodward, Inc. (WWD) : Free Stock Analysis Report

Heico Corporation (HEI) : Free Stock Analysis Report

iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports

Invesco Aerospace & Defense ETF (PPA): ETF Research Reports

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