Instead of looking at individual stocks, consider investing in defense and aerospace sector ETFs if you believe there is an investment potential. Such entities provide a broad range of exposure to these companies while removing the burden of rigorous research off your shoulders. Furthermore, ETFs allow you to avoid those annoying brokerage fees, saving you money in the long run by lowering your commission expense. Also, several ETFs offer tax advantages.
In this article, we look at the best aerospace and defense ETFs, and while we believe they are the best, we are not providing any expert investing or management advice, and if you buy, you are solely responsible for your money.
iShares US Aerospace & Defense ETF (ITA)
This fund aims to track the investment results of an index composed of US equities in the aerospace and defense sector. It has 34 holdings and its top 4 include Raytheon Technologies CORP, Boeing Industrials, Lockheed Martin CORP, and Transdigm Group INC.
Due to the frequent usage of long-term government contracts for the majority of their services, companies in this industry tend to be very large, slow-growing, but extremely stable. However, focusing on the government could have a negative impact, particularly if defense funding falls dramatically in the coming years or if budget constraints force substantial cuts to more ‘discretionary’ defense projects.
ITA remains a feasible option for those prepared to face the industry’s risks because it is substantially less expensive compared to other ETFs. Despite its somewhat undiversified portfolio, the ETF is a good pick for investors looking for exposure to just the top firms in the market and those who are most impacted by the sector’s developments.
SPDR S&P Aerospace & Defense ETF (XAR)
This ETF provides focused exposure to the aerospace and defense sector. Its top 3 holdings are Mercury Systems, Axon Enterprise, and Spirit AeroSystems Holdings. The fund aims to offer investment returns that, before fees and expenditures, are comparable to the S&P Aerospace & Defense Select Industry Index’s total return performance. The product uses a sampling approach to track that performance. It typically invests a large portion of its total assets, but at least 80%, in the securities that make up the index.
Given the fund’s narrow focus, as well as the fact that it only invests in large size firms, it may not be suitable for long-term buy-and-hold portfolios (since most of the stocks held in XAR are already included in broad-based equity funds). This ETF, on the other hand, could be a beneficial tool for tactical traders trying to overweight this market segment.
This ETF distinguishes out from the competition in a few ways. First, the underlying index is equal-weighted, resulting in a well-balanced portfolio free of company-specific risk (and may address concerns about the efficiency of cap-weighted benchmarks). Second, XAR is less expensive than the competition, which is a clear advantage for organizations looking to cut costs.
ARK Space Exploration & Innovation ETF (ARKX)
This ETF is an actively managed fund that invests in worldwide space exploration and innovation enterprises. The portfolio includes firms that develop technology that enables space exploration, such as robotics, artificial intelligence, materials, 3D printing, and energy storage, as well as firms that develop orbital and suborbital aerospace equipment and companies that stand to benefit from aerospace activities.
The fund invests heavily in technology stocks, which is unsurprising. Because the fund owns such a small number of companies, it isn’t diversified enough to replace a core technology allocation, but it might supplement core holdings for investors who trust ARK’s management team. Its top 3 holdings are Trimble Inc (TRMB), The 3D Printing ETF (PRNT), and Kratos Defense & Security Solutions Inc (KTOS).
With some of its other actively managed goods, ARKX, which launched in March 2021, has had a lot of success. Any actively managed product is ultimately a wager on the stock pickers’ portfolio managers. Investors with the strength and faith to ride out short-term volatility in favor of long-term returns will benefit from ARKX. This ETF management fee may appear high, but it’s a value for active management, especially when the manager generates strong alpha.
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN)
The DFEN seeks to triple the daily return of an index of defense firms such as Boeing, United Technologies, and Lockheed Martin. It is intended for professional investors who want to trade for a short period of time. Because it rebalances on a daily basis, its performance over longer periods of time will differ dramatically from that of the underlying equities. Because of the daily reset, DFEN may lose money over time even if the underlying equities have gained, which can come as a shock to buy-and-hold investors who don’t read the fine print.
In the realm of passive investments, the 99-basis point management fee may appear expensive, but it’s comparable to other leveraged products and shouldn’t be a huge worry for traders who expect to cash out their positions soon.
SPDR S&P Kensho Future Security ETF (FITE)
This ETF, a twist on the standard defense ETF, monitors an index of US companies active in aerospace and defense technology. FITE searches for companies involved in various defense-related businesses, such as cybersecurity and advanced border protection, and divides its portfolio into sub-sectors such as drones, robots, wearable technology, space tech, and virtual reality.
Radware Ltd., Broadcom Inc., and Cisco Systems Inc. are its top three holdings. FITE isn’t the most expensive military ETF on the market, but it is a viable option for investors looking for a more nuanced approach to national defense investing.
Trading flexibility, portfolio diversification and risk management, cheaper costs, and tax benefits are all reasons to invest in ETFs. Aerospace & defense ETFs invest in stocks of firms that make and distribute aircraft and aircraft parts, as well as producers of components and equipment for the defense industry. The top ETFs to add to your portfolio include ITA, XAR, ARKX, DFEN, and FITE.