3 ETFs To Play The Aerospace and Defense Sector

In terms of holdings, The Boeing Company, Honeywell International Inc. and United Technologies Corp. occupy the top three positions in the basket comprising 6.46%, 6.39% and 6.27%, respectively, of total net assets.

SPDR S&P Aerospace & Defense ETF (XAR)

This fund follows the S&P Aerospace & Defense Select Industry Index. The Index represents the Aerospace and Defense sector of the S&P Total Market Index. The Index is one of 19 S&P Select Industry Indices, each designed to measure the performance of a narrow sub-industry or group of sub-industries as defined by the Global Industry Classification Standards.

With holdings of 35 stocks, top stocks in the ETF include TransDigm Group Inc., Alliant Techsystems Inc. and Precision Castparts Corp. comprising 4.53%, 4.45% and 4.41%, respectively, of total net assets.

Launched in September 2011, this index has 99.48% focus on U.S companies with the balance 0.52% on others.

The fund so far has managed assets of $20.7 million and the fund has an annual dividend yield of 1.51%. The top 10 companies hold a 43.78% share of total net assets. The average daily volume is about 2,617 shares.

To Sum Up

The aerospace & defense sector has been a keystone of the U.S. economy for decades and has provided well paying jobs for a variety of skill levels. However, the sector’s position is now challenged by global competition, changes in technology, national and worldwide economic conditions, and global policies affecting defense, civilian and commercial aviation.

Sequestration still remains an overhang both in the civil and military sectors. The companies that have little diversification outside the U.S. are highly susceptible to spending cuts from sequestration.

However, undeterred by defense budget cuts, the big defense operators are expanding their operations through acquisitions. Moreover, in order to counter the domestic headwinds, these players are looking for growth from international orders and are busy restructuring their businesses. Also, they are keeping themselves abreast in the technological front with new products countering fresh competition.

Keeping in mind the technological progress, acquisition benefits and cost-cutting efforts of individual companies, we have an overall bullish outlook for the sector.

This article is brought to you courtesy of Eric Dutram.

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