SPDR® S&P Software & Services ETF earns a Morningstar Medalist Rating of Neutral with strength in areas such as People offset by weaker spots such as Process. The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy earns a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in quality exposure and an overweight in volatility exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Matterport

Aurora Innovation

Zeta Global Holdings Corp

Model N

Envestnet

Mitek Systems

AppLovin Corp

Bentley Systems

Agilysys

HashiCorp

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. SPDR® S&P Software & Services ETF earns a Below Average Process Pillar rating. The process benefits from its parent firm's impressive long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. However, the rating is weakened by the fund's weak long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. The parent firm's five-year retention rate of 74% also limits the process.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of an index derived from the computer software segment of a U.S. total market composite index.  In seeking to track the performance of the S&P Software & Services Select Industry Index (the "index"), the fund employs a sampling strategy. It generally invests substantially all, but at least 80%, and of its total assets in the securities comprising the index. The index represents the software and services segment of the S&P Total Market Index ("S&P TMI"). 

 The portfolio is overweight in technology by 15.2 percentage points in terms of assets compared with the category average, and its financial services allocation is similar to the category. The sectors with low exposure compared to category peers are communication services and consumer cyclical, underweight the average by 6.8 and 4.4 percentage points of assets, respectively. The portfolio is positioned across 139 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 11.4% of the strategy's assets were concentrated in the top 10 fund holdings, compared to the category’s 52.3% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 63% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Below Average

Process

State Street’s team is strong compared with others in the industry, resulting in an Above Average People Pillar rating. There are three managers listed on the fund: Karl Schneider, Thomas Coleman, Raymond Donofrio. The team is well equipped, with an average of 19 years of portfolio management experience. Together, they manage a total of two strategies, with a Neutral asset-weighted average Morningstar Medalist Rating, indicating the team will struggle to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Above Average

People

State Street Global Advisors is under new leadership but continues to move along the positive trajectory established by former leaders. SSGA maintains its Above Average Parent Pillar rating.
Cyrus Taraporevala, who oversaw much of SSGA’s recent transformation, retired from the CEO position in December 2022 and passed the baton to his successor, Yie-Hsin Hung. She inherited a business that’s become more disciplined with its fund lineup. Fees have come down, while product development remains focused on fixed-income and sustainability funds, and many of SSGA’s launches have echoed that intention.
The seeds that SSGA planted over the past several years have been bearing fruit. It built out a low-cost series of portfolio building-block ETFs in the U.S. bearing the “SPDR Portfolio” branding. SSGA launched these later than its industry rivals, so they aren’t as large. But they’re competitive, with solid management and low fees, which helped them consistently take in new money over the past several years.
SSGA continued to overhaul its ETF business in Europe with most of its recent fixed-income and sustainability fund launches. Many of these funds track indexes and charge relatively low fees. With operations in the U.S. and Europe standing on a firm foundation, SSGA will put more focus on its Asia-Pacific business—the smallest regional segment of its business.

Parent

SPDR S&P Software & Services ETF

XSW tracks an equal-weighted index of software & services companies, as defined by GICS.

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

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

The SPDR® S&P Software & Services ETF offers an opportunity to invest in the high-growth software and services industry. XSW provides a diversified portfolio of software and services stocks, with a focus on small to mid-cap growth-oriented companies. XSW's equal-weighting methodology sets it apart from its peers and emphasizes smaller, growth-oriented companies within the index.

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XSW offers exposure to software stocks covering themes like cloud computing, AI, and blockchain. The fund's equal-weighting methodology delivers a unique profile with a tilt toward high-growth, mid and small-cap companies. We are bullish and expect XSW to continue delivering positive returns in the next stage of the bull market.

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