Is State Street SPDR S&P Aerospace & Defense ETF (XAR) a Strong ETF Right Now?

Designed to provide broad exposure to the Industrials ETFs category of the market, the State Street SPDR S&P Aerospace & Defense ETF (XAR) is a smart beta exchange traded fund launched on 09/28/2011.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

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

Because the fund has amassed over $5.53 billion, this makes it one of the larger ETFs in the Industrials ETFs. XAR is managed by State Street Investment Management. This particular fund, 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 & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.35%, making it one of the least expensive products in the space.

The fund has a 12-month trailing dividend yield of 0.36%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Industrials sector - about 100% of the portfolio.

Taking into account individual holdings, Karman Holdings Inc (KRMN) accounts for about 4.52% of the fund's total assets, followed by Ati Inc (ATI) and Lockheed Martin Corp (LMT).

The top 10 holdings account for about 39.2% of total assets under management.

Performance and Risk

So far this year, XAR return is roughly 0.46%, and was up about 50.17% in the last one year (as of 03/31/2026). During this past 52-week period, the fund has traded between $144.94 and $292.74.

The fund has a beta of 1.01 and standard deviation of 21.73% for the trailing three-year period, which makes XAR a medium risk choice in this particular space. With about 42 holdings, it has more concentrated exposure than peers .

Alternatives

State Street SPDR S&P Aerospace & Defense ETF is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Global X Defense Tech ETF (SHLD) tracks GLOBAL X DEFENSE TECH INDEX and the iShares U.S. Aerospace & Defense ETF (ITA) tracks Dow Jones U.S. Select Aerospace & Defense Index. Global X Defense Tech ETF has $7.82 billion in assets, iShares U.S. Aerospace & Defense ETF has $12.78 billion. SHLD has an expense ratio of 0.50% 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

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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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).

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