ETF Trends
ETF Trends

Aerospace and defense programs are under fire and projected decrease in government spending may not reinforce the industry and its exchange traded fund (ETF).

As small aerospace firms are pummeled by the financial crisis, the disruption to the global supply chain poses a “significant risk” to the aerospace industry, write Tim Hepher and Andrea Shalal-Esa for Reuters.

Defense spending by the United States is predicted to flatten out in coming years due to budget pressures and high cost of military upkeep, which will delay new arms programs, reports Andrea Shalal-Esa for Reuters. This will affect Boeing (BA) and its continued growth in defense businesses of 4% to 5% each year. But Boeing may shore up profits by extending current programs, win new contracts, grow international sales, and reduce its own cost structures.

Lobbyists for America’s aerospace and defense industry are preparing themselves to persuade President-elect Barack Obama to continue high budgets for prized Pentagon weapons programs and also to include national aviation infrastructure in a potential economic recovery plan, scribes Bryan Bender for The Boston Globe.

The association for America’s aerospace and defense have already stated the need to modernize the armed forces by keeping defense budgets of recent years to help maintain America’s military technological superiority.

By sustaining the high defense budget, the aerospace and defense industry would continue to be a leading manufacturing exporter and job provider for more than 2 million “middle class” jobs and 30,000 suppliers in 50 states.

While investors are nervous about Obama, we’re still in a war, and the war isn’t over yet – defense spending is going to continue in the near-term. The 2009 fiscal year budget for the Department of Defense has already been signed by Bush for $615.5 billion, and it includes stipends for Iraq and Afghanistan.

Interestingly, according to Investment News, PowerShares Aerospace & Defense (PPA) is the top ETF ranked by three year asset growth, gaining 3,083% in assets. The three year total return is -1.2%. The ETF is currently down 39.6% year-to-date.

ETF PPA performance

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.