Quick Investor Guide To Aerospace and Defense ETFs

defense stocksThe aerospace and defense sector found its largest base in the U.S. with a military budget fittingly impressive. Of late, investors may rightly be worried about the fate of the defense industry in the U.S. considering the sequestration and budget austerities that are looming on the industry as a whole.

Nevertheless, leading contactors have emerged relatively unscathed so far, thanks to foreign contracts as well as small regular defense contracts.

Growing commercial opportunities on the heels of  an improving global economy, a pick-up in defense spending in certain other countries and technological innovations and acquisitions actually made up for the military budget cuts. Meanwhile, from the civilian side, the commercial aircraft fleet is also aging fast which is spurring many airliners to upgrade their fleet.

In this perspective, amongst the big names, The Boeing Co. (NYSE:BA) remains prudent enough to not only maintain its foothold in the commercial space, but also remains proactive in the defense arena despite budget austerities.

ETFs to Tap the Sector

The aerospace and defense sector has been performing well over the past three months, overcoming fears of government spending cuts and sequestration. Exchange traded funds (ETFs) like SPDR S&P Aerospace & Defense (NYSEARCA:XAR) and iShares US Aerospace and Defense (NYSEARCA:ITA) have provided returns of 57.18% and 53.40%, respectively, in the year-to-date time frame. Investors have been pouring money in these stocks and ETFs over the past few months and the sector has significantly outperformed the broader market this year.

Below, we highlight the ETFs in the aerospace and defense sector, which primarily have a U.S. bias. Investing in these funds in basket form greatly reduces the risk of investing in particular stocks. Moreover, if one is interested in playing a sector, ETFs have an edge because it comes in a packaged form that gives instant access to a specific sector, the Aerospace & Defense sector in this particular case. The aerospace and defense stocks have performed well in the first nine months of the year and the benefits of the same have trickled down to the defense ETFs (Read: Play a Surging Defense Industry with These 3 ETFs).

SPDR S&P Aerospace & Defense ETF (XAR)

This fund follows the S&P Aerospace & Defense Select Industry Index, focusing on 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 34 stocks, the top spots are taken up by Spirit AeroSystems Holdings Inc. Class A., Alliant Techsystems Inc. and The Boeing Co. comprising 5.01%, 4.71% and 4.60%, respectively, of total net assets.

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

The fund so far has managed assets of $33.7 million and has an annual dividend yield of 1.63%. The top 10 companies hold a 44.04% share of total net assets. The average daily volume is about 2,523 shares.

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