This Aerospace-Defense ETF Is Ready for Takeoff

The aerospace and defense sector stumbled (like most did) during January. But, it could retain its upward trajectory. That’s especially the case given the strong year the sector had in 2023, combined with the potential tailwinds of 2024 behind it.

“In 2023, the aerospace and defense (A&D) industry witnessed a revival in product demand,” a Deloitte report on the industry noted. “In the aerospace sector, domestic commercial aviation revenue passenger kilometers surpassed pre-pandemic levels in most countries. This surge in air travel led to an increased demand for new aircraft and aftermarket products and services.” That was along with the prioritization of advancing military technology, which “drove robust demand in 2023, particularly for weapons and next-generation capabilities.”

As mentioned, 2024 should propel the sector further as demand continues. This could also be helped by lower interest rates if and when they finally do happen. That would give businesses the opportunity to borrow more capital and invest in the A&D sector for various purposes.

“The demand for A&D products and services is expected to continue into 2024,” the report added. “On the commercial side, travel is likely to continue its upward trajectory. In the defense segment, demand for products is expected to continue to increase as geopolitical instability grows. Furthermore, companies in emerging markets, such as advanced air mobility, are expected to advance testing and certification as they prepare for commercialization.”

Leverage Aerospace & Defense Times Three

In the past few months, the Direxion Daily Aerospace & Defense Bull 3X Shares ETF (DFEN) is up over 20%. It could’ve likely been higher if it weren’t for the lackluster start to the market in January. As mentioned, the fund could eventually course-correct and maintain its upward trajectory that stems from last year’s market rally.

DFEN seeks daily investment results equal to 300% of the daily performance of the Dow Jones U.S. Select Aerospace & Defense Index. The index attempts to measure the performance of this industry of the U.S. equity market.

The largest holding in the fund is Boeing, which has had its fair share of problems relating to safety in the 737 MAX plane as of late. This overshadowed the company’s fourth-quarter earnings results, which were actually better than expected. If management can resolve the issues related to the 737 MAX, the stock stands to benefit, and likewise, so will DFEN, given the strength of the sector.

“Deliveries were not what Boeing and its stakeholders had expected at the start of the year, but its cost execution on abnormal production cost and research and development was strong for the airplane business,” wrote Dhierin Bechai in Seeking Alpha. “The Defense business saw strong fourth quarter revenues, but cost growth persisted while the services businesses is performing exemplary.”

DFEN Chart

DFEN data by YCharts

For more news, information, and analysis, visit the Leveraged & Inverse Channel.