A constant barrage of geopolitical tensions coupled with the forceful rhetoric of President Trump has sent defense stocks and ETFs soaring, says Jim Woods, editor of Weekly ETF Report.
While the main reasons why defense ETFs are doing well right now are evident if you take a glance at recent world events — tensions with North Korea, the continued threat of ISIS and strained U.S. relations with Russia — they are not the only causes of this surge.
As the premier defense and aerospace ETF, the iShares U.S. Aerospace and Defense ETF (ITA) has daily fund flows in excess of $3 million and is in a position to take advantage of favorable developments in the defense sector, such as strong sector fundamentals, merger activity and increased defense spending.
Of the several major ETFs covering the defense and aerospace sector, ITA probably has the most straightforward investment strategy, as it diversifies by capping the weightings of the biggest securities.
In terms of performance, ITA has amassed an enviable year-to-date return of close to 30%, making it not only the biggest defense ETF in terms of assets at $4.3 billion under management, but also among the strongest performers this year.
The fund’s 0.44% expense ratio is not the cheapest in the sector, but also not the most expensive. ITA also offers a small 1.1% yield.
ITA invests most of its assets in pure-play defense and aerospace companies. Plus, 57% of the fund’s assets are invested in the top 10 holdings, and many big-name defense and aerospace contractors are on that list.
Boeing (BA) has the biggest allocation at 10.20% of the fund’s assets, followed by United Technologies (UTX), 7.92%; Lockheed Martin (LMT), 7.43%; General Dynamics (GD), 6.54%; and Raytheon (RTN), 6.16%. The fund is non-diversified.
Investors who anticipate that global turmoil and President Trump’s agenda will continue to boost defense stocks in the near future could find the iShares U.S. Aerospace and Defense ETF a worthwhile choice.
Jim Woods is editor of Successful Investing and Intelligence Report.
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