Speculation of a cyclical rotation was confirmed this year with industrial sector exchange traded funds proving to be a stomping ground of sorts for investors looking to bet on an improving U.S. economy.
The Vanguard Industrials ETF (NYSEArca: VIS) is up more than 41% this year and so strong have inflows to industrial ETFs recently been that the Industrial Select Sector SPDR (NYSEArca: XLI) has surpassed its health care equivalent to become the third-largest U.S. sector ETF. [Health Care SPDR Jumps Into Third Place Among Sector ETFs]
Yet it is the SPDR S&P Aerospace & Defense ETF (NYSEArca: XAR) that currently wears the crown as 2013’s best industrial ETF, though it should be noted XAR is locked in a heated competition with the iShares U.S. Aerospace & Defense ETF (NYSEArca: ITA) for that honor.
On its own, the fact that aerospace and defense ETFs have been leading sub-industry plays in 2013 is impressive. Few investors predicted that strength at the start of the year given that group’s vulnerability to government spending cuts. [A Sturdy Industrial ETF]
XAR has been able to muster a gain of over 52% this year even though it is not excessively allocated to the most widely held A&D names, such as Dow components Boeing (NYSE: BA) and United Technologies (NYSE: UTX) or Lockheed Martin (NYSE: LMT). Of that trio, only Lockheed resides in XAR’s top-10 holdings and no stock accounts for more than 4.3% of the ETF’s weight. [Stealthy Aerospace ETF Soars]