If you feel there is an investment opportunity in the aerospace or defense sector, then instead of trying to corner the market on aerospace stocks or trying to fill a basket for a defense sector index, you may want to consider the convenience of a defense and aerospace sector ETF.
ETFs are a bit more convenient since they allow one simple transaction to gain instant exposure to the aerospace and defense sector. You don’t have to have a battle of wills with index basket prices, nor do you have to figure out which stocks to target to gain the correct correlation to the sector.
These ETFs are pre-packaged mini-portfolios of aerospace and defense sector stocks already compiled for your investing pleasure. With on trade, you gain instant exposure to the aerospace and defense industry. And like I said, since there is only one transaction, you can cut down on those brokerage fees and save money by reducing your commission bill.
And not only are ETFs convenient and cost-effective (in some cases), they also come with many advantages including tax benefits. So if all of this makes you want to consider aerospace and defense ETFs, then here are your options…
I have listed each aerospace and defense sector exchange traded fund as well as a short summary of their goals, top holdings, and sector breakdown. Each of these funds contain stocks of companies involved in the aerospace and defense industries and if you need more details, I have listed the links to the fact sheets for each fund as well…
ITA - iShares Dow Jones US Aerospace & Defense ETF
This ETF tracks the Dow Jones U.S. Select Aerospace & Defense Index and of its 33 holdings, it includes stocks like United Technologies Corporation (UTX), Boeing (BA), Goodrich Corporation (GR) and Lockheed Martin (LMT). The sector breakdown of defense and aerospace stocks is about 59% aerospace securities and 41% defense securities. For more information, you can check out the ITA fact sheet on the iShares website.
PPA - PowerShares Aerospace & Defense ETF
This ETF tracks the SPADE Defense Index and of its 51 holdings, some of the top securities are Honeywell International (HON), United Technologies Corporation (UTX), Lockheed Martin (LMT) and Raytheon Corporation (RTN). The sector breakdown in this fund is 80% Industrials, 16% IT Companies, and 4% Materials. For more information, you can check out the PPA fact sheet on the PowerShares website.
XAR - SPDR S&P Aerospace & Defense ETF
This SPDR ETF tracks the S&P Aerospace & Defense Select Industry Index (SPSIAD) and of its 37 holdings, some of the top stocks are Goodrich Corporation (GR), Spirit Aerosystems, Triumph Group Incorporated, and Honeywell International (HON). The sector breakdown for this fund is 97% aerospace and defense and 3% industrial machinery. For more information, you can check out the XAR fact sheet on the SSGA website.
Unfortunately as of now, there are only three ETF options for targeting the aerospace and defense sector, but check back to this list often as I will update it when new funds are introduced or if any of these funds are altered.
But since there are only three funds, that will give you plenty of time to research each ETF and decide which (if any or if all) are the best fit for your portfolio. And if you have any questions or concerns, please speak to your broker or talk to a financial professional.
These ETFs should be well-researched before you make any decisions. Know what it is in each ETF and the risks, too. Watch and see how the funds react to different market conditions and follow any related news regarding the ETF, its holdings, and the aerospace and defense sector.