Launched on 09/28/2011, the SPDR S&P Aerospace & Defense ETF (XAR – Free Report) is a smart beta exchange traded fund offering broad exposure to the Industrials ETFs category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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 Global Advisors, and has been able to amass over $2.67 billion, which makes it one of the larger ETFs in the Industrials ETFs. This particular fund 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
When considering an ETF’s total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.35% for XAR, making it one of the least expensive products in the space.
The fund has a 12-month trailing dividend yield of 0.66%.
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.
For XAR, it has heaviest allocation in the Industrials sector –about 100% of the portfolio.
When you look at individual holdings, Axon Enterprise Inc (AXON – Free Report) accounts for about 7.41% of the fund’s total assets, followed by Rocket Lab Usa Inc (RKLB – Free Report) and Howmet Aerospace Inc (HWM – Free Report) .
Its top 10 holdings account for approximately 50.04% of XAR’s total assets under management.
Performance and Risk
So far this year, XAR has added roughly 0.90%, and is up about 28.69% in the last one year (as of 01/08/2025). During this past 52-week period, the fund has traded between $127.46 and $176.52.
The ETF has a beta of 1.12 and standard deviation of 21.46% for the trailing three-year period, making it a medium risk choice in the space. With about 35 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 – Free Report) tracks SPADE Defense Index and the iShares U.S. Aerospace & Defense ETF (ITA – Free Report) tracks Dow Jones U.S. Select Aerospace & Defense Index. Invesco Aerospace & Defense ETF has $4.43 billion in assets, iShares U.S. Aerospace & Defense ETF has $6.17 billion. PPA has an expense ratio of 0.57% 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.
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