Aerospace and Defense ETFs Could Benefit from Diversification

As major defense and aerospace companies are facing significant cutbacks of their platforms, they are very quickly repositioning themselves to take advantage of non-platform-style government investment, giving related shares and exchange traded funds (ETFs) a chance to lift off.

According to a report, the aerospace and defense sector might have bottomed out last year, while commercial airplane orders will hit their trough in 2010. [Are aerospace and defense ETFs poised for takeoff?] Last year saw record commercial airliner production, thanks to Airbus and Boeing’s big backlogs, reports the Seattle Post-Intelligencer.

Industry insiders forecast that nearly 30,000 new aircraft will be produced over the next 20 years, based on long-term forecasts for a jump in leisure and business travel, not to mention freighter traffic, according to Deloitte’s 2010 Aerospace and Defense industry outlook.

Boeing says it plans to counteract the negative impact of defense budget cuts by branching out into other areas, such as cyber-security, command and control, energy, intelligence and logistics. [Why aerospace and defense is appealing.]

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• PowerShares Aerospace and Defense (NYSEArca: PPA)

• iShares Dow Jones U.S. Aerospace & Defense (NYSEArca: ITA)