In the weeks following Russia's invasion of Ukraine, the defense sector saw robust growth, with Congress passing one of the largest defense spending bills in history. And last month, President Biden signed a bill that delivers $40 billion in assistance for Ukraine as Congress moves to keep military aid to the country flowing.
Also, commercial air travel is in far better shape now than projected, which bodes well for the industry. New technology, shifting company models, and increased merger and acquisition activity should result in better operational efficiencies in 2022 and boost the sector’s overall growth. The global Aerospace and Defense market size is projected to reach $49.7 billion by 2026, growing at a 2.5% CAGR.
Given this backdrop, we think it could be wise to add Aerospace & Defense ETFs iShares U.S. Aerospace & Defense ETF (ITA) and Invesco Aerospace & Defense ETF (PPA) to one’s portfolio.
iShares U.S. Aerospace & Defense ETF (ITA)
This ETF fund offers exposure to the aerospace and defense sector. Companies in this sector are generally large, slow growing, but remarkably stable due to the widespread use of long-term government contracts for most of their services.
With $3.68 billion in assets under management, ITA's top holdings include Raytheon Technologies Corporation (RTX) with a 22.39% weighting; Lockheed Martin Corporation (LMT) at 17.15%; and Boeing Company (BA) at 5.59%. Over the past month, the ETF's fund flows came in at $56.13 million. In addition, its 0.44% expense ratio compares favorably to the 0.46% category average.
Closing the last trading session at $102.18, the ETF is currently trading below its 52-week high of $113.67. ITA’s NAV stands at $103.45. The fund has gained 4.2% over the past six months.
ITA’s POWR Ratings reflect this promising outlook. ITA has a B grade for Buy & Hold. Among the 36 ETFs in the C-rated Industrials Equities ETFs group, ITA is ranked #15. One can also access ITA’s Peer and Trade grades here.
Invesco Aerospace & Defense ETF (PPA)
PPA seeks to give wide exposure to the aerospace and defense industries, including enterprises from non-defense industries. The companies in the sector are usually large, slow growing, but considerably stable due to the extensive use of long-term government contracts for most of their services.
The fund has approximately $1.27 billion in assets under management (AUM). Northrop Grumman Corporation (NOC), has a 7.76% weighting, followed by Lockheed Martin Corporation (LMT) and Raytheon Technologies Corporation (RTX), with 7.45% and 7.04% weightings, respectively.
PPA has an expense ratio of 0.44%, versus the 0.46% category average. The fund has gained 5.1% over the past six months.
Closing the last trading session at $72.17, the ETF is currently trading below its 52-week high of $80.00. PPA’s NAV stands at $72.76.
It is no surprise that PPA has an overall B rating, which translates to Buy in our POWR Ratings system. It also has a B for Peer and Buy & Hold Grade. In addition, it is currently ranked #6 in the same group. In addition to this, one can access PPA's Trade Grade here.
ITA shares were trading at $100.89 per share on Wednesday afternoon, down $1.29 (-1.26%). Year-to-date, ITA has declined -1.70%, versus a -13.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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