Quality exposure in 2021 is a must given there’s still a lot of market uncertainty amid the Covid-19 pandemic. One area of value that ETF investors may want to focus on is an aerospace and defense play via ETFs like the iShares U.S. Aerospace & Defense ETF (ITA).
ITA seeks to track the investment results of the Dow Jones U.S. Select Aerospace & Defense Index composed of U.S. equities in the aerospace and defense sector. Aerospace companies in the index include manufacturers, assemblers and distributors of aircraft and aircraft parts.
The fund rose 14% the past 3 months and in order to gauge momentum, we can apply some technical analysis filters. This can also help confirm a buying opportunity brewing for ITA.
The fund saw some heavy selling volume in the January 4 trading session, which could spell an opportunity for buyers looking to get in a value-added price. The low it reached, $90.44, is just hovering above its 50-day moving average.
When applying a relative strength index (RSI) filter, the fund is below overbought levels. Furthermore, using a moving average convergence divergence (MACD) filter, the exponential moving average (EMA) line is below its signal line.
Typically, you want to wait for that EMA line to cross up before buying. However, if you’re looking for a long-term play nonetheless and still want to diversify your portfolio in the A&D sector, ITA can do just that.
Living Large With ITA
The fund skews more towards large cap companies, which is what you typically want when diving for quality. With a lot of market uncertainty still lingering, large caps can help mute the effects of a downturn better than their small cap brethren.
“Equities in ITA’s portfolio are primarily large-cap stocks with a competitive advantage over its smaller peers,” wrote Michael Gayed in Seeking Alpha. “These stocks are likely to benefit from the long-term growth trend in the aerospace & defense industry. Hence, investing in this fund could be a good bet for investors with a long-term investment horizon.”
“Companies operating in this sector are usually rather large and slow-growing,” he added. “Given that much of their business comes from long-term government contracts, these companies are considered relatively stable. Given that U.S. Government military spending is expected to increase in the coming years, ITA could prove to be a viable choice for exposure to this sector.”
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