Uncertainty over North Korea and the United States’ promise to expand military expenditures retain a rocket in defense stockpiles. As of May 2018, the Standard & Poor’s Aerospace & Defense Select Industry Index (S&P) was up 6.95% year to date. In comparison, the S&P 500 Index returned just 1.78% during the same time period.
The world watches with bated breath as Washington and Pyongyang negotiate the anticipated June 12 meeting between President Trump and North Korean leader Kim Jong-un in Singapore. Even if the meeting does place, many observers remain unconvinced that Kim would entirely dismantle North Korea’s nuclear weapons development.
Investors seeking exposure to the military industry in these times of geopolitical instability between the United States and North Korea might consider adding one of these three exchange-traded funds (ETFs) to their portfolio. (For further information, see How Military Spending Affects the Economy.)
The SPDR S&P Aerospace & Defense ETF, which debuted in 2011, tries to mimic the performance of the S&P Aerospace & Defense Select Industry Index. The fund does this by investing the bulk of its assets in securities that comprise the benchmark index, such as aerospace and military firms. The top five holdings of the fund account for 19% of its portfolio. Axon Enterprise, Inc. (AAXN), TransDigm Group Incorporated (TDG), AeroVironment, Inc. (AVAV), Textron Inc. (TXT), and HEICO Corporation are among these holdings (HEI).
The SPDR S&P Aerospace & Defense ETF has $1.35 billion in assets under management (AUM). Its expenditure ratio is 0.35%, which is lower than the category average of 0.46%. The fund has a year-to-date (YTD) return of 7.11% as of May 2018, but it has also done well in the long run, with a five-year annualized return of 20.68%. (For additional more, read What Will Trump’s Defense Increase Mean for Stocks?)
The iShares U.S. Aerospace & Defense ETF, launched in 2006, seeks to mimic the results of the Dow Jones U.S. Select Aerospace & Defense Index. It tries to do this by investing at least 90% of its AUM in equities that compose the underlying index. These are the stocks of firms that produce, assemble, and distribute airplanes and aviation components. The Boeing Company (BA) is the fund’s largest investment, accounting for 11.19% of its total assets. United Technologies Corporation (UTX) has a 7.55% stake, while Lockheed Martin Corporation (LMT) has a 6.92% stake.
With $6.03 billion in net assets, the iShares U.S. Aerospace & Military ETF is the biggest defense fund in its category. The three- and five-year annualized returns of the fund are 18.82% and 21.59%, respectively. As of May 2018, the ETF was trading at $201.24, at the top of its 52-week trading range of $155.02 to $207.27. The dividend yield on ITA is 0.95%, while the expense ratio is 0.44%. (See also: Defense Stocks Return to Play Following Iran Retreat.)
The Invesco Aerospace & Defense ETF was established in 2005 with the goal of providing returns comparable to the SPADE Defense Index. To do this, the fund invests in index components. These are businesses that design, build, run, and support defense, military, and aerospace activities. PPA’s portfolio consists of 52 equities. Boeing, Honeywell International Inc. (HON), and United Technologies have a combined weighted of 21.67% in the ETF.
With an expense ratio of 0.61%, the Invesco Aerospace & Defense ETF is the most costly of the three products mentioned. It has an AUM of $1.03 billion, which is comparable to XAR. As of May 2018, this average-risk fund has a five-year annualized return of 19.95%, a three-year annualized return of 17.5%, and a YTD return of 6.5%. (For more information, see: Play Defense with Boeing, 3 Other Military Stocks.)
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