Should You Invest in the Invesco Dynamic Software ETF (PSJ)?

If you're interested in broad exposure to the Technology - Software segment of the equity market, look no further than the Invesco Dynamic Software ETF (PSJ), a passively managed exchange traded fund launched on 06/23/2005.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Technology - Software is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 8, placing it in top 50%.

Index Details

The fund is sponsored by Invesco. It has amassed assets over $253.18 million, making it one of the average sized ETFs attempting to match the performance of the Technology - Software segment of the equity market. PSJ 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.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.56%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 7.67%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Information Technology sector--about 62.30% of the portfolio. Telecom and Healthcare round out the top three.

Looking at individual holdings, Cadence Design Systems Inc (CDNS) accounts for about 5.85% of total assets, followed by Synopsys Inc (SNPS) and Ss&c Technologies Holdings Inc (SSNC).

The top 10 holdings account for about 47.25% of total assets under management.

Performance and Risk

So far this year, PSJ has lost about -18.17%, and is down about -31.75% in the last one year (as of 04/22/2022). During this past 52-week period, the fund has traded between $100.03 and $169.83.

The ETF has a beta of 1 and standard deviation of 29.54% for the trailing three-year period, making it a high risk choice in the space. With about 30 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Dynamic Software ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, PSJ is a reasonable option for those seeking exposure to the Technology ETFs area of the market. Investors might also want to consider some other ETF options in the space.

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 $290.40 million in assets, iShares Expanded TechSoftware Sector ETF has $4.75 billion. XSW has an expense ratio of 0.35% and IGV charges 0.43%.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.