As global tension and geopolitical conflicts rise around the world, the defense industry is gaining much attention among investors. Driving the robust demand for defense products, the sector is rapidly fueling the market.
Given the industry’s robust prospects, investing in ETFs like SPDR S&P Aerospace & Defense ETF (XAR), Invesco Aerospace & Defense ETF (PPA), and iShares U.S. Aerospace & Defense ETF (ITA) might be wise choices for those looking to gain exposure to the tech sector.
Events like the Russia-Ukraine conflict and the rising military presence in the Asia-Pacific region have spurred countries to increase defense spending, with NATO members now aiming to allocate at least 2% of GDP toward military budgets, and this increased military investments, driving demand for aerospace, cybersecurity and defense companies.
Simultaneously, the U.S. Department of Defense (DOD) allocated a $2.10 trillion budget for fiscal year 2024, with $1.08 trillion for defense-related expenses. As per the Business Research Co. report, the global defense industry is anticipated to exhibit a CAGR of 5.8% by 2028.
Investors see defense ETFs not only as a way to gain exposure to these trends but also as a hedge against market volatility caused by geopolitical instability.
With that in mind, let’s look at the fundamentals of the top three Industrials Equities ETFs, beginning with number 3.
ETF #3: SPDR S&P Aerospace & Defense ETF (XAR)
XAR seeks to invest in companies' stocks operating across the industrial, capital goods, aerospace, and defense sectors. The fund tracks the performance of the S&P Aerospace & Defense Select Industry Index.
As of October 24, 2024, the fund had assets under management (AUM) of $2.39 billion and an NAV of $158.71. XAR has an expense ratio of 0.35%, lower than the category average of 0.47%.
The fund’s top holdings include Axon Enterprise Inc. (AXON) with a 5.18% weighting, Curtiss-Wright Corporation (CW) at 5.02%, and Howmet Aerospace Inc. (HWM), and L3Harris Technologies Inc. (LHX) at 4.80% and 4.76%, respectively. It currently has a total of 33 holdings.
The fund pays an annual dividend of $0.87, translating to a 0.55% yield at the prevailing price level. The fund’s four-year average yield is 0.58%.
XAR has gained 39.1% over the past year and 21.2% over the past nine months to close the last trading session at $158.65. Its fund inflows came in at $82.12 million over the past month and $275.45 million over the past year.
XAR’s POWR Ratings reflect its promising prospects. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Trade and Buy & Hold and a B for Peer. Of the 36 ETFs in the B-rated Industrials Equities ETFs group, XAR is ranked #10. To access all of XAR’s POWR Ratings, click here.
ETF #2: Invesco Aerospace & Defense ETF (PPA)
PPA invests in stocks of companies operating across aerospace and defense sectors and tracks the SPADE Defense Index. Invesco Capital Management LLC manages this fund.
With $4.50 billion in AUM, its top holdings are RTX Corporation (RTX) with a 7.67% weighting in the fund, Boeing Company (BA) at 7.17% weight, followed by Lockheed Martin Corporation (LMT), and General Electric Co (GE) with 7.12% and 6.91% weightings, respectively. The ETF has a total of 55 holdings.
The ETF's expense ratio is 0.58%, compared to the category average of 0.47%. PPA fund inflows were $1.31 billion over the past year and $617.25 million over the past three months.
PPA pays an annual dividend of $0.65, which translates to a 0.56% yield at the current price level. The fund’s dividend payouts have grown at a 15.2% CAGR over the past three years. Its four-year average yield is 0.69%.
Over the past year, PPA has gained 44.1% to close the last trading session at $116.42. The fund’s NAV was $116.24 as of October 24, 2024.
PPA’s solid fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade and Buy & Hold and a B for Peer. PPA is ranked #6 in the same B-rated group. Click here to access all the PPA ratings.
ETF #1: iShares U.S. Aerospace & Defense ETF (ITA)
BlackRock Fund Advisors manages ITA. The fund invests in growth and value stocks of companies that are operating across industrials, capital goods, aerospace, and defense sectors. It seeks to track the performance of the Dow Jones U.S. Select Aerospace & Defense Index.
As of October 24, ITA had $6.25 billion in assets under management and an NAV of $149.29. Its expense ratio of 0.40% compares to the category average of 0.47%.
The fund’s top holdings include GE with an 18.48% weight, RTX with a 15.87% weight, LMT with a 10.61% weight, and AXON with a 5.18% weight. It has a total of 35 holdings.
ITA’s trailing-12-month dividend of $1.23 yields 0.81% on the current price level, while its four-year average dividend yield is 0.93%. Its dividend payouts have grown at an 11.34% CAGR over the past three years.
Over the past month, the fund’s net inflow came in at $98.69 million. It has gained 39.9% over the past year to close its last trading session at $149.39.
ITA’s promising outlook is reflected in its POWR Ratings. The ETF has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Trade and Buy & Hold. It is ranked #3 out of 36 ETFs in the same Industrials Equities ETFs group. To see ITA's POWR ratings, click here.
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ITA shares were trading at $149.59 per share on Friday afternoon, up $0.20 (+0.13%). Year-to-date, ITA has gained 18.84%, versus a 23.14% rise in the benchmark S&P 500 index during the same period.
About the Author: ShreyaRathi
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