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Is Invesco Dynamic Software ETF (PSJ) a Strong ETF Right Now?

A smart beta exchange traded fund, the Invesco Dynamic Software ETF (PSJ) debuted on 06/23/2005, and offers broad exposure to the Technology 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.

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

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

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These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

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 & Index

PSJ is managed by Invesco, and this fund has amassed over $200.39 million, which makes it one of the average sized ETFs in the Technology ETFs. This particular fund seeks to match the performance of the Dynamic Software Intellidex Index before fees and expenses.

The Dynamic Software Intellidex Index is comprised of stocks of software companies. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors.

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 0.56%, making it on par with most peer products in the space.

PSJ's 12-month trailing dividend yield is 1.40%.

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.

For PSJ, it has heaviest allocation in the Information Technology sector --about 51.70% of the portfolio --while Telecom and Healthcare round out the top three.

Taking into account individual holdings, Roblox Corp (RBLX) accounts for about 7.01% of the fund's total assets, followed by Zoominfo Technologies Inc (ZI) and Cadence Design Systems Inc (CDNS).

PSJ's top 10 holdings account for about 49.62% of its total assets under management.

Performance and Risk

The ETF has lost about -24.89% and is down about -28.34% so far this year and in the past one year (as of 10/06/2022), respectively. PSJ has traded between $86.93 and $155.41 during this last 52-week period.

PSJ has a beta of 1.01 and standard deviation of 31.04% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 31 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Dynamic Software ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

SPDR S&P Software & Services ETF (XSW) tracks S&P Software & Services Select Industry Index and the iShares Expanded TechSoftware Sector ETF (IGV) tracks S&P North American Technology-Software Index. SPDR S&P Software & Services ETF has $210.99 million in assets, iShares Expanded TechSoftware Sector ETF has $4.95 billion. XSW has an expense ratio of 0.35% and IGV charges 0.40%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Technology 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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Invesco Dynamic Software ETF (PSJ): ETF Research Reports
 
Cadence Design Systems, Inc. (CDNS) : Free Stock Analysis Report
 
SPDR S&P Software & Services ETF (XSW): ETF Research Reports
 
iShares Expanded TechSoftware Sector ETF (IGV): ETF Research Reports
 
ZoomInfo Technologies Inc. (ZI) : Free Stock Analysis Report
 
Roblox Corporation (RBLX) : Free Stock Analysis Report
 
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