The world isn’t getting any safer, and as long as that remains the case, there is going to be demand for defense companies and the products they make.
Defense stocks tend not to be glamorous as tech stocks, but they provide reliable revenue and income from a customer — the U.S. government — with a seemingly insatiable appetite for its products. Defense stocks tend to be stable contributors to an income-focused portfolio, with predictable long-term revenue streams that translate into solid dividends.
But no one defense contractor makes everything, and one would have to buy all of the largest defense companies to gain full exposure to a sector. With that in mind, it might make more sense to invest in defense through an exchange-traded fund (ETF) that gives you a small interest in a large number of companies with ties to the aerospace and defense market.
iShares U.S. Aerospace & Defense ETF
The iShares U.S. Aerospace & Defense ETF (NYSEMKT:ITA) is the largest ETF focused on defense, with $3.65 billion in net assets as of early May 2022. The ETF is designed to provide exposure to domestic United States aerospace and defense companies, as well as exposure to the commercial aerospace industry.
As of early May, the top five holdings in the iShares U.S. Aerospace & Defense ETF were:
- Raytheon Technologies (NYSE:RTX)
- Lockheed Martin (NYSE:LMT)
- Boeing (NYSE:BA)
- Northrop Grumman (NYSE:NOC)
- General Dynamics (NYSE:GD)
The top five holdings represent just over 50% of total assets in a portfolio that includes 39 stocks. iShares U.S. Aerospace & Defense has a 0.42% expense ratio.
SPDR S&P Aerospace & Defense ETF
SPDR S&P Aerospace & Defense ETF (NYSEMKT:XAR) has $1.58 billion in assets under management and invests in the stocks that make up the S&P Aerospace & Defense Select Industry Index. The index attempts to broaden exposure past the so-called “prime” contractors that dominate the top end of the defense market, blending in a mix of mid-cap and small-cap industry exposure as well.
As of early May, the top five holdings in the SPDR S&P Aerospace & Defense ETF were:
- Northrop Grumman
- Aerojet Rocketdyne (NYSE:AJRD)
- Huntington Ingalls Industries (NYSE:HII)
- Howmet Aerospace (NYSE:HWM)
- Hexcel (NYSE:HXL)
The top five holdings represent about 20% of total assets in the portfolio. The SPDR Aerospace & Defense ETF has a 0.35% expense ratio.
Invesco Aerospace & Defense ETF
The Invesco Aerospace & Defense ETF (NYSEMKT:PPA) is based on the SPADE Defense Index, which is designed to identify companies involved in the development, manufacturing, operations, and support of the U.S. defense, homeland security, and aerospace sectors. The ETF has about $1.43 billion in assets.
As of early May, the top five holdings in the Invesco Aerospace & Defense ETF were:
- Northrop Grumman
- Lockheed Martin
- General Dynamics
- Raytheon Technologies
- Boeing
The ETF has 57 total holdings. The top five holdings represent about 35.3% of the total portfolio. The Invesco Aerospace & Defense ETF has a 0.61% expense ratio.
ARK Space Exploration & Innovation ETF
The ARK Space Exploration & Innovation ETF (NYSEMKT:ARKX) is an aerospace-focused actively managed fund run by Cathie Wood’s Ark Invest. As with most of Ark’s portfolio, this ETF is focused primarily on growth. In this case, that means the ARK Space Exploration ETF has a lot of…
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