As the global economy shows signs of recovery, what does the future hold for the aerospace and defense sector and its exchange traded funds (ETFs)?
Scott Sacknoff of SPADE Indexes states the following factors make the sector appealing:
- A 5.6% increase in the aerospace budget, much of which will fund the ongoing wars this year
- The launch of rockets by Iran and North Korea are stirring up concerns that something might happen
- Valuations of companies in the sector are at the bottom of the gutter and some companies are showing healthy balance sheets
- A weak dollar makes aerospace more attractive to foreigners
- The satellite and space business remain strong regardless of the economic downturn
This doesn’t mean that it is all gravy for the sector. As the economy continues to rebound, President Barack Obama and his administration will start reducing spending programs and start paying back some of the nation’s debt. Unfortunately, defense is one of the largest discretionary items and will probably feel some of this aforementioned wrath.
This has caused aircraft manufacturer, Boeing (BA) to cut its global outlook for aircraft demand and focus on existing orders rather than chasing new orders. The company reported that over the next 20 years, it anticipates 29,000 new planes to be ordered worldwide, down from an earlier forecast of 29,400, states the Associated Press.
If you do want to grab exposure to the sector, take a look at the following ETFs:
- iShares Dow Jones U.S. Aerospace & Defense Index (ITA): up 7.8% year-to date and above its 200-day moving average; BA is 8%.
- PowerShares Aerospace & Defense (PPA): is up 6.4% and above its 200-day moving average; BA is 7.3%.
For more stories on aerospace and defense, visit our aerospace and defense category.
Kevin Grewal contributed to this article.
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.