As Military Budgets Go up, so Do Aerospace and Defense Stocks

Russia’s invasion of Ukraine has led to the prospect of military spending going up, which in turn has led stocks in the aerospace and defense sector to rally. European countries have been building up their military capabilities and increasing their defense spending in response to the Russia-Ukraine war. Also fueling defense stocks are countries promising to offer more rigorous ground-to-air missiles for Ukrainian forces to fend off Russia.

As a result, investors are looking towards ETFs that track the aerospace and defense industry, including the ARK Space Exploration ETF (ARKX).

Launched last March, ARKX is an actively managed ETF that looks for exposure to such sectors as orbital and sub-orbital aerospace, defense, electrical engineering, machinery, and professional services.

One of ARKX’s top holdings as of March 4 was Kratos Defense & Security Solutions Inc. (Nasdaq: KTOS), a San Diego-based developer of directed-energy weapons, unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, training, and combat systems. Kratos was weighted at 8.5%, according to ARKX’s most recent disclosure.

A report from MarketWatch names KTOS as one of 10 aerospace and defense stocks with majority “buy” or equivalent ratings that analysts expect to rise the most over the next year.

ARKX holds 35 stocks ranging in weight from 0.98% to 9.51%. The fund’s top five holdings combine for nearly 35% of the fund’s weight. ARKX charges 0.75% per year, or $75 on a $10,000 investment.

After less than a year on the market, ARKX has brought in nearly $470 million in assets under management, making it one of the more successful thematic ETFs that debuted last year.

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