The COVID-19 pandemic has wreaked havoc on the aerospace and defense (A&D) sector in 2020, especially with the aerospace suffering from travel restrictions. However, the defense side of A&D can still prop up the industry with more government spending.

“The story of the decline and the impacts has been widely covered,” a SME article noted. “The level of significance of the downturn has forced the industry to deal with immediate concerns facing the business, namely right-sizing staffing levels and protecting cash. While these are critical considerations, it is still important to not lose sight of the future and how to best reorient the business today to take advantage of the new market reality, and subsequent return to growth. No matter how well you handle the current problems, if you don’t position and align the business to what’s next, it may all be for naught. To get the balance right, there are six main issues the A&D sector needs to consider and address over the next six to 12 months.”

As the A&D industry continues to struggle through the pandemic, defense is key.

“It’s no secret that defense has become a relatively safe haven for firms with exposure to commercial aerospace and defense,” the article added. “Defense spending, at least in most Western nations, has remained relatively robust. Governments are using defense spending as a stimulus to compensate for the commercial decline. Some firms that have defense and commercial exposure have been protecting key suppliers by bringing commercial firms into defense supply chains to keep the workforce operating. While generating defense revenue can take time, the next 12 to 24 months will present opportunities for firms that can find a niche to exploit and invest in building a position.”

ETFs to take advantage of include the Invesco Aerospace & Defense ETF (PPA). PPA seeks to track the investment results (before fees and expenses) of the SPADE® Defense Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index, which is composed of common stocks of companies that are engaged principally in the development, manufacture, operation and support of U.S. defense, military, homeland security and space operations.

PPA Chart

Another option within the sector to check out is the SPDR S&P Aerospace & Defense ETF (XAR), in particular, could be in play. XAR seeks to provide investment results that correspond generally to the total return performance of the S&P Aerospace & Defense Select Industry Index, which represents the aerospace and defense segment of the S&P Total Market Index. In seeking to track the performance of the S&P Aerospace & Defense Select Industry Index, the fund employs a sampling strategy.

XAR Chart

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