Aerospace and defense sector-related exchange traded funds could get fired up as President Barack Obama’s new budget plan includes an end to caps, or the so-called sequestration, on U.S. domestic and military spending.
Over the past year, the iShares U.S. Aerospace & Defense ETF (NYSEArca: ITA) rose 9.9%, PowerShares Aerospace & Defense Portfolio (NYSEArca: PPA) increased 11.8% and SPDR S&P Aerospace & Defense ETF (NYSEArca: XAR) gained 10.0%. [Aerospace & Defense ETFs Still in Fighting Shape]
In a proposed budget plan for the next fiscal year beginning on October 1, the White House proposes a roughly 7% spending increase over previous sequester limits, including $561 billion in defense outlays, or $38 billion above the caps, reports Jeff Mason for Reuters.
“The president will propose to end the across-the-board sequester cuts that threaten our economy and our military,” Obama said. “The … budget will fully reverse those cuts for domestic priorities, and match those investments dollar-for-dollar with the resources our troops need to keep America safe.”
Obama’s proposed budget increase would allow for additional next-generation F35 fighters, ships and submarines and long-range Air Force Tankers, reports Josh Lederman for the Associated Press.
Lockheed martin (NYSE: LMT) manufactures the F35s. LMT makes up 6.3% of ITA, 6.3% of PPA and 3.3% of XAR.
The automatic spending cuts, or sequestration, went into effect in 2013 but was diminished in 2014 and 2015 under bipartisan negotiations. However, the compromise bill is set to end with the current fiscal year on September 30.
The increased spending will likely hit opposition in the Republican-controlled Congress where they hold majority seats in both the House of Representatives and Senate. Republican Senate Majority Leader Mitch McConnell’s office has pointed out that Obam’s administration had tried unsuccessfully to do away with spending cuts before.
iShares U.S. Aerospace & Defense ETF
For more information on the defense industry, visit our aerospace & defense category.
Max Chen 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.