In what is perhaps the ultimate “Trump trade,” some of this year’s best-performing industry ETFs include aerospace and defense ETFs.
While these funds are already on a torrid pace, residing near all-time highs, some market observers believe aerospace and defense stocks and ETFs can continue delivering for investors.
The iShares U.S. Aerospace & Defense ETF (BATS: ITA), the largest fund in the group, is up almost 27% year-to-date. ITA is a cap-weighted ETF, meaning it has larger weights to big-name defense stocks, including Dow components Boeing (NYSE: BA) and United Technologies (NYSE: UTX). Aerospace and defense stocks are part of the broader industrial sector and have been important drivers of the sector’s performance over the past year. In fact, aerospace and defense names have been industrial leaders.
“Global geopolitical tensions have given way to upside for the names; the S&P 500 aerospace and defense index is now pacing for its best weekly performance since May,” reports CNBC. “Matt Maley, equity strategist at Miller Tabak, likes defense stocks on a longer-term basis but pointed to some issues more recently, on the back of the group’s surge.”
The PowerShares Aerospace & Defense Portfolio (NYSEArca: PPA) is one of ITA’s rivals. PPA holds 53 stocks and is heavily allocated to large-cap aerospace and defense stocks, including Boeing and United Technologies. PPA is up 22% year-to-date.
“Obviously we have a situation where President Trump wants to increase the defense budget, and we’re not getting a whole lot of pushback from Democrats; they’re focused on other issues. We also have North Korea, and I think that’s going to escalate. So on a fundamental, long-term basis, they still should look good,” Maley said in an interview with CNBC.
Related: Big Growth for Aerospace Stocks, ETFs
The SPDR S&P Aerospace & Defense ETF (NYSEArca: XAR) gives investors an equal-weight approach to aerospace investing. That ETF is up more than 25% this year. XAR holds 38 stocks, none of which command more than 4.4% of the ETF’s weight. XAR’s weighted average market capitalization is $24 billion, smaller than what investors find in ITA and PPA, underscoring the point that some equal-weight strategies provide increased exposure to mid- and small-cap stocks.
Traders looking for a more aggressive play on aerospace equities can consider the Direxion Daily Aerospace & Defense Bull 3X Shares (NYSEARCA: DFEN). DFEN, which debuted earlier this year, seeks to deliver triple the daily returns of the Dow Jones U.S. Select Aerospace & Defense Index.
For more information on the defense industry, visit our aerospace & defense category.