Boeing Lifts Aerospace ETFs, But Will Airline Woes Ground Them?

Boeing's stronger-than-expected earnings numbers this morning cleared aerospace and defense exchange traded funds (ETFs) for takeoff.

Boeing (BA) is the world's second-largest commercial airplane manufacturer, reports Ashley M. Heher for the Associated Press. Its earnings grew 38% in the first quarter, beating Wall Street estimates, but sales missed expectations.

Boeing is 8.5% of iShares Dow Jones US Aerospace & Defense (ITA), which is down 9.8% year-to-date. It's also 7.1% of the PowerShares Aerospace & Defense (PPA), down 10.8% year-to-date.

What are Boeing's prospects down the line, though? The airlines are coming out with dismal numbers each day, and one would think this is going to put a dent into the number of orders they'll place for new planes.

Will Election-Year Good Times for Defense Sector and ETFs Continue?

It's election time and a recession looms - is it a good time for aerospace and defense exchange traded funds (ETFs)?

Billy Fisher for The Street says it may be. The two aerospace and defense ETFs are relatively new: iShares Dow Jones U.S. Aerospace and Defense Fund (ITA) launched in May 2006 and the PowerShares Aerospace and Defense Fund (PPA) launched in October 2005.

The Dow Jones U.S. Aerospace & Defense Index has outperformed the S&P 500: since the last time we picked a commander-in-chief, the aerospace index increased by 17.3% vs. the S&P's 9.3%.

In presidential election years dating back to 1988, stocks such as Boeing (BA), Raytheon (RTN) and Honeywell (HON) have done well. If the trend continues, could 2008 be another good year for these stocks?

If McCain wins, the prospects for the sector could continue to look good. He has said that he's willing to keep troops in Iraq for 100 years, if that's what it takes to win the war. He has also called for the United States to "bolster its regional military posture." Defense funds could directly benefit from any ramped up spending in that sector.

Using an ETF for these funds instead of picking and choosing which defense contractors will benefit from increased spending is the way to go, since these companies are all competing for a limited number of contracts. A fund that holds them all will take guesswork out of the equation.

787 Program Embarrasses Boeing, Delays ETF Gains

Aerospace exchange traded funds (ETFs) are down slightly this morning after reports that Boeing (BA), a major component of both, is once again delaying plans for its 787 Dreamliner.

The delay is putting the lightweight, fuel-efficient aircraft as much as 18 months behind its original target daye, reports Bill Rigby for Reuters. The company is still saying that it will deliver 109 of the planes by the end of 2009, but analysts think only 10-45 of the planes will be ready by then. Japan's All Nippon Airways is expected to get the first Dreamliners.

The delay is likely to cost Boeing millions in compensation payments to airlines. Boeing will report its first quarter earnings on April 23.

PowerShares Aerospace & Defense (PPA; Boeing is 6.8%) and iShares Dow Jones US Aerospace and Defense (ITA; Boeing is 9%) could stand to benefit if Boeing gets these planes off the ground.

Worldwide Growth Can Build Up Demand for Industrial ETFs

The PowerShares FTSE RAFI Industrials Sector (PRFN) exchange traded fund (ETF) could benefit from optimism in the industrial sector down the line.

How's that? Many of the companies in this fund's top holdings have a global reach, including General Electric (GE), which is far and away the largest holding in the fund at 18%. Another holding, Caterpillar (CAT), is up 10.6% year-to-date and makes up 2.6% of the fund. United Parcel Service (UPS), which is 4.1% of the fund, has an extensive global network. Developing markets in a growth spurt help fuel the demand for the products these companies offer and help offset the damage of a U.S. slowdown, reports Don Dion for Seeking Alpha.

The fund represents a wide range of sectors, including defense and aerospace, machinery makers, transportation and software.

The fund is down 4.6% so far this year, but if the sectors that it represents continue to post gains, this ETF could stage a turnaround. A prolonged recession in the United States, however, could pinch this ETF, while a global slowdown would really hurt. If this fund moves above its trend line (200-day moving average), it could be one to keep an eye on.

Boeing Orders Are Up; Transportation ETF Cleared to Take Off?

The PowerShares Aerospace & Defense (PPA) exchange traded fund (ETF) could benefit from news that Boeing (BA) shares rose Friday. Boeing is a major component in the fund at 6.8%. The company reported orders of 85 more planes this week.

The Associated Press reports that the aircraft maker's stock rose more than 2% on Friday. These gains contrast the markets' fall of Bear Stearns, which is getting bailed out by the government and J.P. Morgan Chase. Morgan Stanley upgraded Boeing shares on the news that more orders will boost stock and earnings this year.

PPA could use some help lifting off: it's down 13.1% year-to-date.

Taiwan and ETF Are Going Through a Growth Spurt; Will It Keep It Up?

The iShares MSCI Taiwan Index (EWT) exchange traded fund (ETF) is up 3.8% year-to-date, leaving us wondering what is happening over there?

The greater Taipei region's real estate market beat the odds of a normally slow February, so says the latest realtor company statistics. The average price of a home rose to $9,860US per ping for February transactions, up 3% from the previous month, reports The China Post. A ping is a traditional Chinese unit of measurement, equivalent to 3.3 square meters.
 

Meanwhile, inflation is rising in Taiwan, too. Consumer prices rose 3.1% from a year earlier. This is the first time in four months that Taiwan has seen inflation, largely because of higher meat and vegetable prices. Chinmei Sung for Bloomberg reports that a resurgence of inflation related to the higher food costs may trigger the Central Bank to raise interest rates. The government said last month that consumer prices will rise 1.98% this year, faster than the previous estimate of 1.84%.

Taiwan's president Chen Shui-bian said the island has beefed up defense spending after its rival, China, said it wold do the same, reports Thomson Financial. For the first time in many years, military spending is going to account for 3% of Taiwan's GDP.

For full disclosure, some of Tom Lydon's clients own shares of EWT.

Play Tenacious D With Your ETF Portfolio

Consider playing defense with exchange traded funds (ETFs) this year.

Thomas Smicklas on Seeking Alpha says he recently spent time with Air Force officers and is firm that the military is in need of a large system makeover and equipment rehab-program covering things from boots to space weapons to protect vital communication links in space.

Despite who becomes our next president in November, they must protect and defend our vital interests here and overseas. Technology is pressing ahead so that we must keep up with the pace, or risk sinking quickly. Kevin Baker noted earlier this month that defense is one sector in particular that stands to gain if John McCain takes the White House.

iShares Dow Jones US Aerospace and Defense Index Fund (ITA) is weighted 59% in aerospace and 41% in defense. And while defense is vital, Smicklas says, aerospace is where the action is in the future.

Boeing (BA) recently reported an increase in fourth-quarter profits, and a rush of order numbers could keep ITA and the other related ETF, the PowerShares Aerospace & Defense (PPA) flying high for some time.

Defense, Biotechnology ETFs Stand to Gain if McCain Wins

The events of Super Tuesday didn't solidify much in the way of the presidential race on the Democratic side, but one person has taken a few guesses as to which exchange traded funds (ETFs) will win if Sen. John McCain takes the presidency.

Based on McCain's record and statements over the last few months, Kevin Baker for The Street predicts that certain sectors, in particular defense and biotechnology, could perform especially well under his leadership.

McCain has said that he's willing to keep troops in Iraq for 100 years if that's what it meant to achieve victory. He wants the United States to "bolster its regional military posture." PowerShares' Aerospace & Defense (PPA) could benefit if McCain stepped up military spending. Among its top holdings are Lockheed Martin (LMT, 6.3%) and Boeing (BA, 6.6%).

McCain also supports embryonic stem-cell research, which could lead to federal funding for it to be restored. If that happens, the SPDR S&P Biotechnology (XBI) could benefit from renewed focus on the "care and cure of chronic disease." Among the fund's top holdings are Regeneron Pharmaceuticals (REGN, 3.6%) and Genentech, Inc. (DNA, 3.5%).

In the interest of balance, Baker will talk later about which ETFs stand to gain in a Hillary Clinton and Barack Obama presidency.

Boeing Earnings Lift Off Defense ETFs

Wall Street and related exchange traded funds (ETFs) were impressed by the 4% increase in fourth-quarter profits by Boeing Co. (BA).

Delays in the 787 Dreamliner program don't appear to pose a threat to performance. Dave Carpenter for Associated Press reports that the world's second-largest commercial jet maker is continuing to address problems with the first 787's and will slightly reduce 2008 revenue and deliveries estimates.

Boeing shares have taken off to $83.78 in midday trading. Boeing's net income for the last three months of 2007 was $1.03 billion or $1.36 per share, 4 cents higher than Thomson Financial analysts' expectations.

PowerShares Aerospace and Defense (PPA) has Boeing at 5.02% of assets and iShares Dow Jones US Aerospace and Defense (ITA) gives Boeing 8.44% of assets in the basket.

It's a Bird, It's a Plane, or Is It Defense ETFs?

The good news is that Boeing (BA) is doing so well that defense-related exchange traded funds (ETFs) might take off along with their order numbers. But the company might be doing a little too well.

Nicola Clark for the New York Times reports that in 2005 and 2006, Boeing and its rival Airbus, added a combined 4,000 contracts. That's equivalent to 4 years of production. In 2007, they added another three years to their backlogs.

Ordinarily, a rush of orders like that would be a good thing. But since the economy has slowed and may even slow further, there are now questions of whether the airlines will actually be able to take delivery of these new planes once they're built.

It's all up in the air, so to speak, but at least the airline industry returned a profit in 2007 for the first time in six years. That, in turn, gave several carriers the money to invest in bigger and better aircraft.

These defense and transportation ETFs could be worth keeping an eye on this year:

• PowerShares Aerospace & Defense (PPA), Boeing is 5.02%
• iShares Dow Jones US Aerospace & Defense (ITA), Boeing is 8.44%
• iShares Dow Jones Transportation Average (IYT)

Durable Goods Orders Affect ETFs

Orders for durable goods ticked up slightly for November, and a number of exchange traded funds (ETFs) could be affected by the news. The increase was small - only 0.1% - and well short of the hoped-for 2.2%. It was, however, the first increase in four months, so we'll take the good news where we can get it.

According to Jeannine Aversa at the Associated Press, there was increased demand for electrical equipment, appliances, automobiles, commercial airplanes and primary metals, including steel. Increases in those areas offset the lower demand for machinery, computers, electronics and defense aircraft.

Durable goods are defined as products that are expected to last at least three years.

The sales of U.S. goods to foreign buyers remains strong, thanks to the continuing weakness of the U.S. dollar.

Among the ETFs that could feel the effects of the report:

• Market Vectors Steel (SLX), up 87.8% year to date
• iShares Dow Jones US Aerospace & Defense (ITA), up 31% year to date
• Technology Select Sector SPDR (XLK), up 18% year to date
• iShares Dow Jones US Technology (IYW), up 18.1% year to date

Aerospace & Defense ETFs Offer Insulation

Aerospace and defense focused exchange traded funds (ETFs) are supported by a network of strong commercial aerospace demand and increased defense spending. Both of these appear to have staying power despite rising fuel costs and waning housing values. PowerShares Aerospace and Defense Portfolio (PPA) fell 3% from October highs but this can be a result of a negative impact of the fuel and housing headwinds, reports Don Dion for Seeking Alpha.

The ETFs performance has tighter relations with U.S. government spending, geopolititcal events and global growth, giving a barrier against the U.S. economy. Top holdings make up 49.7% of assets and include Lockheed Martin (LMT), Boeing (BA) , Northrup Grumman (NOC), General Dynamics (GD) and Raytheon (RTN). PPA is up 22.2% year to date.

For those of you who appreciate choices there is also another ETF, iShares Dow Jones US Aerospace and Defense (ITA) that offers similar holdings and different weightings. ITA is up 26.3% year to date.

Getting Defensive With ETFs

Is it a good time for investors to get defensive, especially while reviewing their stock and exchange traded fund (ETF) portfolios? The Goldman Sachs economic team is projecting a slowing of real GDP growth to 1.9% in 2008, with the Fed projecting real GDP growth of about 2.8% in 2009 and close to 2.7% in 2010, reports Richard Safran and Noah Poponak for Barron's. This takes the defense sector view from neutral to attractive.

Economic cycles tend not to touch the defense sector as revenues are driven by the government and Department of Defense, not the consumer. This can be a safe place for investors to go when the economic growth slows or turns negative. Since 1976, defense stocks have outperformed the S&P 500 by about 21% in a presidential election year. Relative performance of the defense stocks doesn't seem to change depending upon which political party is in control of the White House.

These ETFs represent the defense sector:

• iShares Dow Jones US Aerospace and Defense (ITA) up 30.5% year-to-date
• PowerShares Aerospace and Defense (PPA) up 25.2% year-to-date

Market and ETF Facts to Consider

There's a lot going on in the markets and exchange traded funds (ETFs).  Matt Hougan for Index Universe looks at 10 interesting market facts and we've added some ETF related information.

1. The U.S. stock market is uneasy. Volatility is the best performing index this year, up 138.7% on the CBOE Volatility Index, compared to a year ago.
2. Technical analysis aside, the Dow Theory says "If the train slows down, the economy soon follows." iShares Dow Jones Transportation Average (IYT) is up 0.4% year-to-date.
3. Utilities are going off, as you may know from those huge checks you write each month. Utilities Select Sector SPDR (XLU) is up 15.7%.
4. Some indexes following Europe aren't as pretty as you may think, even with a strong currency.  Although we find the iShares S&P  Europe 350 Index (IEV) is up 14.7%. Isn't the euro worth more than gold right now?
5. European countries and their markets aren't always in sync. Performance ranges up and down, depending which country you're in. iShares MSCI Germany Index (EWG) is up 32% and iShares MSCI Belgium Index (EWK) is down 0.5%.
6. The China/Japan dichotomy, with such proximity, what gives? iShares MSCI Japan(EWJ) is down 1.3% and iShares MSCI Xinhua/China 25 Index (FXI) is up 66.9%.
7. Understanding contango in commodity investing is important.  It's confusing and has investors angry.
8. One of best domestic sector ETFs is Aerospace & Defense -PowerShares Aerospace and Defense (PPA) is up 24.6%. The worst sector is homebuilding - SPDR S&P Homebuilders (XHB) is down 53.4%.
9. Small-cap growth is doing well, maybe not as well as in recent past, but they are holding their own. iShares S&P SmallCap 600 Growth (IJT) is up 5.4%, compared to the S&P 500 which is up 3.6%.
10. Dividends aren't offering the safe haven thought of through tough markets. iShares Dow Jones Select Dividend Index (DVY) is down 6.0%.

Buckle Up: Aerospace ETFs Are Cleared for Takeoff

The companies that supply parts and equipment to commercial airlines, the military, and the exchange traded funds (ETFs) that cover them, are getting a boost from the more demanding global clientele, reports Vance Cariaga at Investor's Business Daily.

U.S. carriers are prettying up their carriers with roomier cabins, wider seats and more entertainment centers. The companies that supply the equipment not only reach out to commercial airlines, but to the military as well - and we all know there has been an increase in defense spending lately. Thanks to the efforts, two ETFs are - ahem, pardon the pun - taking off quite nicely:

• iShares Dow Jones US Aerospace & Defense (ITA), up 30.2% year-to-date
• PowerShares Aerospace & Defense (PPA), up 24.8% year-to-date

Boeing Puts a Ding in Defense ETFs' Performance

Defense-related exchange traded funds (ETFs) such as PowerShares Aerospace & Defense (PPA) and iShares Dow Jones U.S. Aerospace & Defense (ITA) generally have been strong performers this year as the Iraq war continues. In fact, as Gary Gordon for ETF Expert notes, these two ETFs finished last week near record highs. Currently, PPA is up 30.1% year-to-date, and ITA is up 33.1% year-to-date.

However, both these ETFs are down today, and one of the factors behind the dip could be Boeing's (BA) recent announcement that the 787 Dreamliner will be delayed by six months because it's struggling to assemble the revolutionary new aircraft. It's Boeing's worst delivery delay ever, reports Marilyn Adams for USA Today. Boeing's stock has been down ever since the announcement last week. Boeing is a top holding in both defense ETFs, making up 10.0% of ITA and 5.6% of PPA.