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

Zacks Equity Research

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.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

Sector ETFs are also funds of convenience, offering many 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 4, placing it in top 25%.

Index Details

The fund is sponsored by Invesco. It has amassed assets over $325.65 M, 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 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 0.63%, making it on par with most peer products in the space.

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.

This ETF has heaviest allocation in the Information Technology sector--about 61.70% of the portfolio. Telecom and Healthcare round out the top three.

Looking at individual holdings, Twilio Inc (TWLO) accounts for about 6.32% of total assets, followed by Electronic Arts Inc (EA) and Intuit Inc (INTU).

The top 10 holdings account for about 46.82% of total assets under management.

Performance and Risk

The ETF has gained about 17.51% so far this year and was up about 30.23% in the last one year (as of 02/15/2019). In that past 52-week period, it has traded between $67.91 and $88.71.

The ETF has a beta of 1.19 and standard deviation of 20.12% for the trailing three-year period, making it a high risk choice in the space. With about 29 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Dynamic Software ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, PSJ is a great option for investors seeking exposure to the Technology ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

SPDR S&P Software & Services ETF (XSW) tracks S&P Software & Services Select Industry Index and the iShares Expanded Tech-Software Sector ETF (IGV) tracks S&P North American Technology-Software Index. SPDR S&P Software & Services ETF has $158.60 M in assets, iShares Expanded Tech-Software Sector ETF has $2.43 B. XSW has an expense ratio of 0.35% and IGV charges 0.47%.

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
 
Twilio Inc. (TWLO) : Free Stock Analysis Report
 
Intuit Inc. (INTU) : Free Stock Analysis Report
 
iShares Expanded Tech-Software Sector ETF (IGV): ETF Research Reports
 
SPDR S&P Software & Services ETF (XSW): ETF Research Reports
 
Electronic Arts Inc. (EA) : Free Stock Analysis Report
 
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