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.


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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