Thread: Global Events, Trump Rhetoric Boost Defense ETF

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  1. #1

    Default Global Events, Trump Rhetoric Boost Defense ETF

    A constant barrage of geopolitical tensions coupled with the forceful rhetoric of President Trump has sent defense stocks and exchange-traded funds (ETFs), such as the iShares U.S. Aerospace and Defense ETF (ITA), soaring.
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    While the main reasons why defense ETFs are doing well right now are evident if you take a glance at recent world events tensions with North Korea, the continued threat of ISIS and strained U.S. relations with Russia
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    hey are not the only causes of this surge. A Sept. 20 article from Zacks entitled Beyond North Korea, 4 More Reasons to Buy Defense ETFs, laid out some additional reasons why defense ETFs are a hot item of late.
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    Succinctly, they are:

    1) Lots of mergers and acquisitions (M&A) activity in the sector (for example, Northrop Grummans $7.8 billion buyout of aerospace company Orbital ATK)

    2) The prospect of more U.S. troops being deployed to the Middle East

    3) Strong sector fundamentals

    4) The passing of a $700 billion defense bill by the Senate for war spending and the production of 94 F-35 Lightning II jets.
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    As the premier defense and aerospace ETF, ITA has daily fund flows in excess of $3 million and is in a position to take advantage of favorable developments in the defense sector, such as those mentioned above. Of the several major ETFs covering the defense and aerospace sector, ITA probably has the most straightforward investment strategy, as it diversifies by capping the weightings of the biggest securities.
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    In terms of performance, ITA has amassed an enviable year-to-date return of close to 30, making it not only the biggest defense ETF in terms of assets at $4.3 billion under management, but also among the strongest performers this year. The fundís 0.44 expense ratio is not the cheapest in the sector, but also not the most expensive. ITA also offers a small 1.1 yield.

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