Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

As Global Defense Spending Ramps Up, 2 ETFs To Add Firepower To Any Portfolio

By Investing.com (Tezcan Gecgil/Investing.com )ETFsNov 19, 2020 09:37AM ET
www.investing.com/analysis/as-global-defense-spending-ramps-up-2-etfs-could-add-firepower-to-a-portfolio-200545153
As Global Defense Spending Ramps Up, 2 ETFs To Add Firepower To Any Portfolio
By Investing.com (Tezcan Gecgil/Investing.com )   |  Nov 19, 2020 09:37AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Aerospace and defense (A&D) stocks or exchange-traded funds (ETFs) focusing on that segment typically get significant investor attention. It is a large industry with robust, established companies. Today's post introduces two funds that may be appropriate for long-term investors interested in A&D.

Increased Government Spending

Global governments are typically the top customers for most of these businesses, especially of defense companies.

According to metrics from Global Firepower, the US currently leads the list of nations in defense spending with an approximate annual budget of $750 billion. Next in lines are China ($237 billion), Saudi Arabia ($67.6 billion), India (61 billion) and the UK ($50.1 billion).

Research and Markets highlights:

"Global Defense Spending has been on a major upswing over the recent years spurred by the return of the great power competition amongst the leading global powers... The United States continues to maintain the traditional top spot driven by the nation's significant focus & investments towards R&D while the Chinese ascension & the Russian resurgence, too, are being funded adequately."

Aerospace can be broken into defense and commercial segments. The pandemic has negatively affected commercial aviation. Since March, air passengers have had to decrease or even fully stop traveling, especially internationally. Manufacturers like Airbus (OTC:EADSY) and Boeing (NYSE:BA) have had to defer new aircraft delivery.

Boeing has also been on a difficult path to winning back passenger trust after the two tragic accidents involving the 737 MAX aircraft. On Nov. 18, the US Federal Aviation Administration (FAA) approved the plane to enter service again.

In terms of aerospace exports, in 2019, the US held the highest spot with $136 billion, followed by France ($53.5 billion), and Germany ($42.3 billion). Finally, the US, Russia, France, Germany and China have the top spots in weapons exports.

Although aviation has suffered in 2020, PWC suggests, "On the defense side of the industry, the situation appears less dire, with demand protected by budgeted government spending."

Put another way, A&D is an important industry with big spending and almost-guaranteed customers. As a result, it may deserve a place in long-term portfolios.

iShares US Aerospace & Defense ETF

Current Price: $184.78

52-Week Range: $112.47 - $240.62

Dividend Yield: 1.75%

Expense Ratio: 0.42%

The iShares US Aerospace & Defense ETF (NYSE:ITA) provides exposure to US-based manufacturers of commercial and military aircraft as well as other defense equipment. The fund started trading in 2006.

ITA Weekly TTM
ITA Weekly TTM

ITA, which has 35 holdings, tracks the Dow Jones US Select Aerospace & Defense Index. Close to 75% of the fund's holdings are in the top ten stocks. A&D equipment and technology supplier to military, commercial and civil customers Raytheon (NYSE:RTX), which has recently merged with United Technologies, security and aerospace giant Lockheed Martin (NYSE:LMT), Boeing, Teledyne (NYSE:TDY), which provides sophisticated electronic components and communications products, and manufacturer of aircraft components Transdigm Group (NYSE:TDG) are the leading names in the fund.

Since the start of the year, ITA is down 16%. Trailing P/E and P/B ratios stand at 17.86 and 2.97, respectively. A potential decline of 5%-7% in the coming weeks would improve the margin of safety for long-term investors.

Finally, interested investors might like to know that as of the close of business on Dec. 2, 2020, the fund will have a 2-for-1 split. Like other stock splits, this move will lower the share price and increase outstanding shares. However, the total value of shares outstanding will not be affected by the upcoming split.

Bottom Line

Market participants who are interested in A&D, but do not want to buy an ETF with full exposure to the industry may also want to research the SPDR S&P Kensho Future Security ETF (NYSE:FITE). In addition to more traditional A&D businesses, the fund provides access to innovative firms that operate in cybersecurity, robotics, drones, space technology, wearables as well as augmented reality (AR). It started trading in late 2017.

FITE has 66 holdings and $17 million in net assets. The sector breakdown is A&D (34.91%), Systems Software (24.72%) and Communications Equipment (9.28%), among others.

The top three names in the fund are Maxar Technologies (NYSE:MAXR), which focuses on earth intelligence and space infrastructure, cloud-based cybersecurity provider CrowdStrike (NASDAQ:CRWD) and Varonis Systems (NASDAQ:VRNS), which provides data security and analytics. Year-to-date, FITE is up over 3%.

Finally, for more aggressive day traders with a bullish view on the sector, the Direxion Daily Aerospace & Defense Bull 3X Shares Direxion Daily Aerospace (NYSE:DFEN) may be an appropriate short-term trading tool. However, long-term investors should not consider buying such leveraged funds.

As Global Defense Spending Ramps Up, 2 ETFs To Add Firepower To Any Portfolio
 

Related Articles

BlackBull Markets
Yellow Card For Sports ETF By BlackBull Markets - Sep 01, 2021

Cristiano Ronaldo announced that he would be leaving Juventus Football Club (MI:JUVE) and returning to play for the club where he started his professional career, Manchester United...

As Global Defense Spending Ramps Up, 2 ETFs To Add Firepower To Any Portfolio

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Bliot Otieno
Bliot Otieno Nov 19, 2020 10:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks Tezcan for the information. I love reading your FTE pointers. Can you please suggest good renewable energy and EV FTEs?
Thomas Maier
Thomas Maier Nov 19, 2020 1:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
@Ed Miller : the day covid vaccine is out, the use of fire power will increase
Ed Miller
Ed Miller Nov 19, 2020 11:23AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Its hard to imagine defense spending increasing, at least in the US,  with a Democratic administration coming in.  Plus, even on a global basis, defense spending increases seem unlikely given the pandemic.
Charles Sturrock
Charles Sturrock Nov 19, 2020 7:46AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Another one folks may want to consider: Vanguard Industrials Index Fund ETF SharesNYSE Arca:VIS
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email