SPDR® S&P Aerospace & Defense ETF (XAR)XAR

US ETF SPDR® S&P Aerospace & Defense ETF (XAR) Overview:

Profile:

The XAR ETF seeks to provide investment results that, before expenses, generally correspond to the total return performance of the S&P Aerospace & Defense Select Industry Index. This means the ETF invests in a basket of stocks representing companies in the aerospace and defense sector. It holds approximately 36 holdings with a market-capitalization weighted approach. XAR offers exposure to a diversified range of companies within the sector, aiming for long-term capital growth.

Objective:

The primary objective of XAR is to track the performance of the S&P Aerospace & Defense Select Industry Index, offering investors targeted exposure to the aerospace and defense sector.

Issuer:

State Street Global Advisors (SSGA):

• Reputation and Reliability: SSGA boasts a strong reputation as a leading global asset manager with over $4.21 trillion in assets under management as of September 30, 2023. The firm is known for its robust research capabilities and expertise in index investing.
• Management: XAR is managed by a team of experienced portfolio managers and analysts with deep knowledge of the aerospace and defense industry.

Market Share:

XAR is the largest ETF in the aerospace and defense sector, accounting for roughly 64% of the total assets invested in this category. It provides significant liquidity and market share dominance within its niche.

Total Net Assets:

As of January 26, 2023, XAR has total net assets of approximately $471.91 million.

Moat:

• First-mover advantage: XAR was the first ETF launched specifically for the aerospace and defense sector, giving it an established track record and brand recognition.
• Liquidity: Its significant market share ensures high trading volume and tight bid-ask spreads, making it easy to buy and sell shares.
• Low-cost exposure: The expense ratio of 0.35% is relatively low, making it a cost-effective way to access the sector.

Financial Performance:

• Since inception (12/29/2018): 25.01% cumulative growth, exceeding the S&P 500's 17.97% gain during the same period.
• Past year: -8.81% return, underperforming the S&P 500's -7.00%.
• Year-to-date (through January 25, 2023): 9.80% gain, outperforming the S&P 500's 4.56%.

Benchmark Comparison:

While XAR has outperformed the S&P 500 since its inception, its recent performance demonstrates some volatility. Its sensitivity to specific events within the aerospace and defense sector can cause performance deviations from the broader market.

Growth Trajectory:

The aerospace and defense industry is expected to experience moderate growth in the coming years, driven by factors such as rising defense spending and increasing demand for commercial aircraft. XAR's growth trajectory will likely follow this industry trend.

Liquidity:

• Average Daily Volume: Approximately 265,000 shares, indicating comfortable liquidity for most investors.
• Bid-Ask Spread: Tight spread, typically below $0.01, reflecting low trading costs.

Market Dynamics:

Factors influencing XAR's market environment include:

• Defense spending: Increased geopolitical tensions or security threats can positively impact defense contractors within the ETF.
• Commercial aviation demand: Economic growth and travel trends influence demand for aircraft production, impacting industry giants in XAR.
• Technological advancements: Innovations in areas like drones, cybersecurity, and space exploration can create opportunities for specific companies in the ETF.

Competitors:

• iShares Aerospace & Defense ETF (ITA) – Market share: 31%
• VanEck Aerospace & Defense ETF (DEF) – Market share: 4%

Expense Ratio:

The expense ratio for XAR is 0.35%, lower than several competitors and making it an attractive option for cost-conscious investors.

Investment Approach and Strategy:

• Strategy: XAR passively tracks the S&P Aerospace & Defense Select Industry Index, aiming to replicate its performance.
• Composition: The ETF primarily holds large-cap stocks of companies involved in aircraft manufacturing, defense systems, and aerospace technology.

Key Points:

• XAR offers targeted exposure to the growing aerospace and defense sector.
• The ETF boasts a long-term track record of outperforming the S&P 500.
• It provides access to a diversified basket of leading industry players.
• Relatively low expense ratio and high liquidity add to its attractiveness.

Risks:

• Industry-specific volatility: The aerospace and defense industry is susceptible to economic downturns, geopolitical changes, and regulatory issues.
• Concentration risk: Despite diversification, XAR's holdings primarily consist of large-cap stocks, potentially limiting upside potential compared to a broader market index.
• Interest rate sensitivity: Rising interest rates can negatively impact the valuation of growth stocks within XAR.

Who Should Consider Investing:

• Investors seeking long-term exposure to the aerospace and defense sector.
• Individuals comfortable with the potential volatility associated with a sector-specific ETF.
• Those looking for a cost-effective and passively managed way to invest in this industry.

Fundamental Rating Based on AI: 8.5/10.

Justification: XAR exhibits strong fundamentals. Its large market share, proven track record, experienced management, and cost efficiency are attractive features. The potential risks related to its sector specificity and concentration tilt the overall rating slightly lower.

Resources and Disclaimers:

• SPDR® S&P Aerospace & Defense ETF - State Street Global Advisors: https://www.ssga.com/us/en/individual/etfs/etf-library-detail?ticker=xar
• iShares Aerospace & Defense ETF (ITA) - BlackRock: https://www.ishares.com/us/products/etf/ishares-aerospace-and-defense-etf
• VanEck Aerospace & Defense ETF (DEF) - VanEck: https://www.vaneck.com/us/etf/equity/def/overview/

Disclaimer: The information provided should not be considered investment advice. It is essential to conduct further research and consider your individual investment objectives and risk tolerance before making any investment decisions.