Did you know the iShares U.S. Aerospace & Defense ETF (ITA) commands a remarkable $6.23 billion in net assets as of May 2024? This fact highlights the growing interest of investors in defense ETFs for stable income and dividends. These specialized funds focus on companies in the military and defense sectors, including aerospace and weapons production. Though they’ve lagged behind the broader market recently, they access a market powered by significant budgets, like that of the U.S. government.
Defense ETFs offer avenues into military and defense industry stocks, promising routes to steady revenue. They cover a spectrum of companies, from leading aerospace firms to entities in weapons production. This variety provides broad exposure to an essential industry. Investing in defense contractors via ETFs allows for participation in the secure, consistent income that typically comes with government contracts.
Understanding Defense ETFs
Defense ETFs have emerged as key for investors looking into the aerospace and defense sectors without picking single stocks. They offer a broad investment in companies making military tech, armaments, and aerospace products. This includes businesses specializing in guided missile systems too.
What Are Defense ETFs
Defense ETFs are exchange-traded funds focusing on the defense sector, including armaments and defense technology. They invest in companies known for defense products and services. This encompasses aerospace equipment, cybersecurity, and unmanned vehicles. Key indexes followed by these ETFs include the MarketVector™ Global Defense Industry Index and the MarketVane Defense Index.
Why Invest in Defense ETFs?
Investing in defense ETFs can be wise due to the steady income they provide. The government-backed demand ensures consistent demand. This results in steady income and dividends. Defense ETFs give investors a chance to benefit from growth in sectors like defense technology without handling single stocks directly. Notable examples include the VanEck Defense UCITS ETF and the HANetf Future of Defence UCITS ETF, both based in Ireland.
Market Performance and Trends
The performance of defense ETFs often mirrors the general movements in the defense industry. For example, the MarketVector™ Global Defense Industry Index showed a 51.69% boost in a year, with a 5.20% increase last month. Specific ETFs, like the VanEck Defense UCITS ETF, gained 22.46% in 2024, while the HANetf Future of Defence UCITS ETF saw a 17.08% return.
When comparing ETFs, consider performance and cost. The Invesco Aerospace & Defense ETF (PPA) had the highest return at 26.8% over a year. Meanwhile, the SPDR S&P 500 Aerospace & Defense ETF (XAR) boasts the lowest expense ratio at 0.35%. The iShares U.S. Aerospace & Defense ETF (ITA) is the most liquid, with 452,818 shares traded daily and $5.8 billion in assets.
These metrics show why adding defense ETFs to your portfolio could be beneficial. They offer stable investments with support from government contracts and a continuous need for new defense tech.
Top Defense ETFs in the Market
In the strategic defense portfolio arena, several key entities lead the market. They are known for robust performance, high liquidity, and competitive fees. The iShares U.S. Aerospace & Defense ETF (ITA), Invesco Aerospace & Defense ETF (PPA), and SPDR S&P Aerospace & Defense ETF (XAR) stand out for investors.
iShares U.S. Aerospace & Defense ETF (ITA)
The iShares U.S. Aerospace & Defense ETF (ITA) is the largest defense ETF, with $6.23 billion in net assets as of May 2024. It has a 30-day average daily volume of 452,818 and an expense ratio of 0.39%. Its top five holdings make up 55% of total assets, offering significant exposure to major industry players.
Invesco Aerospace & Defense ETF (PPA)
The Invesco Aerospace & Defense ETF (PPA) outshines with a one-year return of 26.8%, the highest among listed ETFs. It manages about $3.178 billion in assets and has an expense ratio of 0.58%. With 30.8% of the portfolio in its top five holdings, PPA provides a balanced investment approach in defense.
SPDR S&P Aerospace & Defense ETF (XAR)
The SPDR S&P Aerospace & Defense ETF (XAR) is also a top choice in strategic defense portfolios. It holds $2.11 billion in assets with a low expense ratio of 0.35%. XAR’s structure offers diversified defense sector exposure, with top five holdings representing 21.7% of assets. XAR enables investors to access a broad range of companies in the aerospace and defense sector.
By focusing on these top defense ETFs, you can strategically diversify your portfolio. They provide exposure to a sector known for stability and growth. Whether you prioritize performance, fees, or a well-rounded portfolio, these ETFs represent the best the market offers for defense sector investment.
How To Invest In Defense ETFs
Defense ETFs attract investors wanting military stocks in their portfolios. They give access to sectors funded by the U.S. government, combining stability with growth. We will show you how to invest in them and pick the best one for you.
Step-by-Step Investment Guide
A methodical approach is key when investing in defense ETFs:
Determine your goals first. Are you looking for growth, income, or both? This will guide you in choosing the right ETF. Next, look at the ETFs’ performance histories. For example, iShares U.S. Aerospace & Defense ETF (ITA) reported a 25.1% increase, and the SPDR S&P 500 Aerospace & Defense ETF (XAR) saw a 24.1% gain.
Don’t overlook expense ratios and yields; they impact your long-term returns. ITA has a 0.39% ratio, whereas XAR’s is only 0.35%. Assessing liquidity is also crucial. It ensures you can trade shares easily. Lastly, evaluate the diversification of the ETF. A diversified fund can cushion against poor performance in individual stocks.
| ETF | Assets Under Management (USD) | 30-Day Average Daily Volume | 30-Day SEC Yield | Expense Ratio (%) | 1-Year Performance (%) |
|---|---|---|---|---|---|
| iShares U.S. Aerospace & Defense ETF (ITA) | $5.8 billion | 452,818 | 0.78% | 0.39 | 25.1% |
| Invesco Aerospace & Defense ETF (PPA) | $1.9 billion | 132,946 | 0.58% | 0.58 | 26.8% |
| SPDR S&P 500 Aerospace & Defense ETF (XAR) | $1.5 billion | 57,658 | 0.44% | 0.35 | 24.1% |
Choosing the Right ETF
Choosing the best defense ETF requires careful thought:
Match the ETF with your investment goals. If you want stable income, you might lean towards ETFs with higher yields, like ITA. Lower expense ratios boost your returns, making XAR appealing at 0.35%. Performance history indicates potential growth and reliability; PPA excels with a 26.8% record.
Consider market exposure too. A blend of different stock sizes offers a balanced risk and return. ITA, for example, includes leaders like Boeing and Lockheed Martin. Investing in defense ETFs needs thoughtful analysis, but the rewards can be significant. These steps are meant to ease your investment path and help make educated choices in defense ETFs and contractors.
Benefits of Investing in Defense ETFs
Investing in defense ETFs offers several compelling benefits. They are an attractive choice for those seeking stability and profitability. These benefits make them crucial for diverse portfolios.
Diversification
Defense ETFs provide diversification by pooling investments across various companies. They include those within the aerospace and defense sectors. This minimizes risks tied to individual stocks. Investors benefit from the collective performance of firms like Boeing, Lockheed Martin, and Raytheon Technologies.
The iShares U.S. Aerospace & Defense ETF (ITA) and SPDR S&P 500 Aerospace & Defense ETF (XAR) are notable for managing substantial assets. They have $5.8 billion and 57,658 average daily volume respectively, offering a diverse entry into the defense industry.
Reliable Revenue Streams
Government contracts offer predictable income for companies in defense ETFs. Statista notes the U.S. defense budget’s growth since 2017. This trend is set to continue through 2032. Hence, companies within aerospace ETFs and defense funds maintain consistent revenue streams.
This consistency translates to stable financial performance for investors. It highlights the security attached to defense industry investments.
Stable Income and Dividends
Due to long-term, capital-intensive projects, defense ETFs often provide attractive dividend yields.
Risks and Considerations
Investing in defense ETFs offers stability and reliable revenue. But, it’s key to note the risks and factors involved. When investing in defense contractors, understanding these issues is essential. It helps in making informed choices.
Market Risks
Market risks come with investing in defense ETFs because of geopolitical tensions and government budgets. These elements can cause market volatility. The MarketVector™ Global Defense Industry Index includes various sectors like aerospace and cybersecurity. But it requires companies to have a market cap above $1 billion and a monthly trading volume of at least 250,000 shares. This criteria ensures stability among included companies but doesn’t remove all market risks.
Ethical and Moral Considerations
For many, investing ethically in defense raises significant concerns. Companies in this field often focus on weapons and military tech. This can stir controversy. The MarketVector™ Global Defense Industry Index does exclude firms that seriously breach UN Global Compact Principles. Yet, the connection to arms and military efforts may not fit all ethical standards.
Performance Volatility
Performance volatility is a factor in investing in defense contractors. Defense sector’s performance fluctuates with changes in spending and geopolitical shifts. The MarketVector™ index caps company weights at 8% for diversification. However, volatility in performance can still affect defense ETFs’ returns.
| Consideration | Details |
|---|---|
| Market Risks | Geopolitical tensions and government budgets can lead to periodic volatility. |
| Ethical and Moral Considerations | Investing in defense may conflict with personal ethical values. |
| Performance Volatility | Subject to changes in defense spending and geopolitical situations. |
Detailed Review of the Best Defense ETFs
When evaluating top defense ETFs, one must look at performance metrics, top holdings, and expense ratios. This review delivers insights into the leading defense sector funds.
Performance Metrics
Performance metrics like net assets and liquidity mirror an ETF’s market status. The iShares U.S. Aerospace & Defense ETF stands out with $6.23 billion in assets as of May 2024. Following it, the Invesco Aerospace & Defense ETF has about $3.178 billion. The SPDR S&P Aerospace & Defense ETF is next, possessing around $2.11 billion.
Smaller ETFs exhibit unique positions. The ARK Space Exploration & Innovation ETF holds $249.3 million. The Direxion Daily Aerospace & Defense Bull 3X Shares and the SPDR S&P Kensho Future Security ETF report $156.9 million and $55.7 million, respectively.
Top Holdings
ETFs’ top holdings shed light on their focus and risk levels. The iShares U.S. Aerospace & Defense ETF includes 38 stocks, its top five covering over 55% of assets. The Invesco Aerospace & Defense ETF holds 52 stocks, with the top five making up 30.8% of its portfolio.
The SPDR S&P Aerospace & Defense ETF has 65 holdings, and its top five account for 21.7% of assets. The ARK Space Exploration & Innovation ETF’s top five holdings represent 39% of its portfolio. Likewise, the top five holdings of the Direxion Daily Aerospace & Defense Bull 3X Shares and the SPDR S&P Kensho Future Security ETF make up 54.7% and about 33%, respectively.
| ETF | Net Assets (May 2024) | Top Holdings Composition |
|---|---|---|
| iShares U.S. Aerospace & Defense ETF | $6.23 billion | 55% of total assets |
| Invesco Aerospace & Defense ETF | $3.178 billion | 30.8% of total portfolio |
| SPDR S&P Aerospace & Defense ETF | $2.11 billion | 21.7% of total assets |
| ARK Space Exploration & Innovation ETF | $249.3 million | 39% of total portfolio |
| Direxion Daily Aerospace & Defense Bull 3X Shares | $156.9 million | 54.7% of portfolio |
| SPDR S&P Kensho Future Security ETF | $55.7 million | 33% in defense companies |
Understanding these metrics is vital for informed defense technology and guided missiles ETFs investment decisions. High assets and diverse holdings are key to performance and stability, enriching long-term investing.
