Launched on 09/28/2011, the State Street SPDR S&P Aerospace & Defense ETF (XAR) is a smart beta exchange traded fund offering broad exposure to the Industrials 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.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
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.
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
XAR is managed by State Street Investment Management, and this fund has amassed over $6.3 billion, which makes it one of the largest 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
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.
With one of the least expensive products in the space, this ETF has annual operating expenses of 0.35%.
It has a 12-month trailing dividend yield of 0.31%.
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.
Taking into account individual holdings, Bwx Technologies Inc (BWXT) accounts for about 3.67% of the fund's total assets, followed by Curtiss Wright Corp (CW) and Carpenter Technology (CRS).
XAR's top 10 holdings account for about 31.95% of its total assets under management.
Performance and Risk
Year-to-date, the State Street SPDR S&P Aerospace & Defense ETF has gained about 16.11% so far, and it's up approximately 46.84% over the last 12 months (as of 06/02/2026). XAR has traded between $194.24 $292.74 in this past 52-week period.
The ETF has a beta of 0.98 and standard deviation of 22.67% for the trailing three-year period, making it a medium risk choice in the space. With about 42 holdings, it has more concentrated exposure than peers .
Alternatives
State Street 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 $8.21 billion in assets, iShares U.S. Aerospace & Defense ETF has $14 billion. PPA has an expense ratio of 0.58% and ITA 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 Industrials ETFs
Bottom Line
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State Street SPDR S&P Aerospace & Defense ETF (XAR): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).