Inside XSW: An Equally-Weighted Mid-Cap Play on the U.S. Software Sector

Launched in September 2011 and managed by SSGA Funds Management, a subsidiary of State Street Corporation, the State Street SPDR S&P Software & Services ETF (XSW) has grown to over $0.5 billion in assets under management. Carrying an expense ratio of 0.35%, the fund tracks the S&P Software & Services Select Industry Index, designed by S&P Dow Jones Indices. The fund's underlying selection universe draws from the S&P Total Market Index, filtering for U.S.-based companies in application software, systems software, interactive home entertainment, and IT consulting that meet specific liquidity and market-cap thresholds above $0.5 billion.

Unlike traditional market-capitalization-weighted funds, XSW applies an equally-weighted methodology across its holdings, re-adjusting those allocations four times per year. As of November 2026, the portfolio spans 129 stocks, with software companies commanding nearly 90% of the total weight. Application software alone accounts for more than two-thirds of the allocation. Mid-cap firms make up 43% of the portfolio, while small-caps represent over one-fourth, giving the fund a distinct footprint compared to large-cap heavy alternatives.

Investors seeking regular income should note that XSW features erratic and unreliable distributions. Because the underlying companies prioritize reinvesting free cash flows, executing mergers and acquisitions, or pursuing share buybacks over paying dividends, payouts can fluctuate significantly, including skipped distributions such as the one in September 2026. Furthermore, the equal-weighted approach helps curb individual stock concentration but introduces higher portfolio turnover and tracking inefficiency.

What to watch next: Monitor the fund's upcoming quarterly rebalancing dates and distribution announcements to track yield stability and turnover impacts.