Designed to provide broad exposure to the Industrials - Aerospace & Defense segment of the equity market, the SPDR S&P Aerospace & Defense ETF (XAR) is a passively managed exchange traded fund launched on 09/28/2011.
An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.
Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Industrials - Aerospace & Defense is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 12, placing it in bottom 25%.
The fund is sponsored by State Street Global Advisors. It has amassed assets over $1.27 billion, making it one of the larger ETFs attempting to match the performance of the Industrials - Aerospace & Defense segment of the equity market. 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.
When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.
Annual operating expenses for this ETF are 0.35%, making it one of the least expensive products in the space. It has a 12-month trailing dividend yield of 0.53%.
Sector Exposure and Top Holdings
ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Industrials sector--about 100% of the portfolio.
Looking at individual holdings, Rocket Lab Usa Inc. (RKLB) accounts for about 4.24% of total assets, followed by Axon Enterprise Inc (AXON) and Boeing Company (BA). The top 10 holdings account for about 38.41% of total assets under management.
Performance and Risk
The ETF has lost about -9.64% so far this year and is down about -12.46% in the last one year (as of 11/07/2022). In that past 52-week period, it has traded between $91.68 and $126.95.
The ETF has a beta of 1.11 and standard deviation of 33.13% for the trailing three-year period, making it a medium risk choice in the space. With about 36 holdings, it has more concentrated exposure than peers.
SPDR S&P Aerospace & Defense ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XAR is a reasonable option for those seeking exposure to the Industrials ETFs area of the market. Investors might also want to consider some other ETF options in the space.
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 $1.59 billion in assets, iShares U.S. Aerospace & Defense ETF has $4.06 billion. PPA has an expense ratio of 0.58% and ITA charges 0.39%.
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Article initially appeared on nasdaq.com
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