Is State Street SPDR S&P Aerospace & Defense ETF (XAR) a strong ETF right now?

Hide Full ArticleA smart beta exchange traded fund, the State Street SPDR S&P Aerospace & Defense ETF (XAR - Free Report) debuted on 09/28/2011, and offers broad exposure to the Industrials ETFs category of the market.

What are smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking 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.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund sponsor and index

Because the fund has amassed over $4.39 billion, this makes it one of the larger ETFs in the Industrials ETFs. XAR is managed by State Street Investment Management. XAR, before fees and expenses, seeks to match the performance of the S&P Aerospace & Defense Select Industry Index.

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 and other expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics 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 0.62%.

Sector exposure and top holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 100% of the portfolio, the fund has heaviest allocation to the Industrials sector.

When you look at individual holdings, Aerovironment Inc (AVAV) accounts for about 4.98% of the fund's total assets, followed by Archer Aviation Inc A (ACHR) and Kratos Defense + Security (KTOS).

XAR's top 10 holdings account for about 39.33% of its total assets under management.

Performance and risk

The ETF has added roughly 38.03% and is up roughly 38.64% so far this year and in the past one year (as of 11/17/2025), respectively. XAR has traded between $144.94 and $251.24 during this last 52-week period.

XAR has a beta of 1.13 and standard deviation of 20.13% for the trailing three-year period, which makes the fund 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 $6.56 billion in assets, iShares U.S. Aerospace & Defense ETF has $12.01 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.

Want the latest recommendations from Zacks Investment Research? Download 7 Best Stocks for the Next 30 Days. Click to get this free report