No. of Recommendations: 12
Sales of software, either with customizing software systems (which tend to become entrenched within the customer's infrastructure and extremely expensive, and usually pointless, for them to move) and providing services (and/or product upgrades), or through leasing is a
really good business. It tends to intrinsically have moat-like characteristics, as well as very high returns on equity because you are selling rights, not physical products.
Over time, we also know that equal weight does better than market cap weight, notwithstanding the fact that market cap has done unusually well over the last decade. Over larger stretches of time, and over many geographies, equal weight is the better choice.
Can software and equal weight be combined? I'm pretty fond of XSW, which holds the components of the Software and Services S&P500 index with equal weight.
QQQE (the Nasdaq equal weight) is great, but XSW has performed even better over time at least as far as the stock price.
What about their relative increases in intrinsic value between QQQE and XSW? That matters more, and I would like to think that the software firms within QQQE would have an edge over the rest of QQQE.
I'd love some help with this. XSW has a reported forward PE of about 28 reported by SPDR. This seems low for software, today in particular, so I'm a little careful. They explain the forward PE as:
The weighted harmonic average of current share price divided by the forecasted one year earnings
per share for each security in the fund. Negative and positive outliers are included in the calculation.https://www.ssga.com/library-content/products/fact...I wonder if anyone can help me with this question. Why do indexes sometimes use this method of calculating PE using harmonic averages? I would have thought that the best way to calculate a PE for an index would be:
Sum of market capitalizations of all firms
PE (index) = ----------------------------------------------------------
Sum of earnings (both positive and negative) over all firms
Can anyone explain the pros/cons of this formula above, versus the harmonic averages uses as used by SPDR for the XSW ETF.
My main research question, and second question, is what is the increase in sale per share of QQQE (equal weight NASDAQ) compared to the increase in sales per share of XSW (equal weight software services sector) from 2012 to 2025.
That would be a good proxy for the relative increase in intrinsic value per share of QQQE versus XSW from 2012 to 2025, and I reckon XSW had an even stronger IV increase than QQQE but I'd like evidence. Looking at the stock price doesn't cut it of course, as one or the other index may have had a larger change in valuation multiples. Using sales per share growth is a better proxy for IV increase, than earnings growth, as that also eliminates problems with temporary high/low margins at the start and end dates.
Thanks for any help.
- Manlobbi
