Investment Profile: Defending America

Rockets. Drones. Commercial flight. Military might.

The aerospace and defense sector in the U.S. is one of the biggest producers of military equipment in the world. Our 2016 military spending was $611 billion — larger than the next 8 biggest military spenders combined.

Why invest in aerospace and defense?

The U.S. Aerospace and Defense (A&D) industry also supports nearly 3 million jobs, while it generated $872 billion in sales in 2016, according to  according to the Aerospace Industries Association.

Defense spending by country (billions of dollars). Source: SIPRI

This sector also includes commercial flight. We’re traveling by air a lot more than we used to, thanks to lower ticket prices, more available routes and more seats on planes (and less legroom). Passenger travel demand quintupled from 1981 to 2016.  

Military might is big business and there’s a growing international market for defense equipment. The Trump administration has said it will ramp up military spending by $54 billion, or 10%. That means a potentially big boost to the dozens of defense contractors who supply the government with planes, missiles and guns. Saudi Arabia recently committed to spending $350 billion for weapons over the next decade.

Meanwhile, the stocks of publicly traded defense companies have soared since the November elections. As a group, these stocks have grown 15%, compared to 10% for the broader S&P 500 basket of stocks between the November 8 elections and April, 2017. Increased orders for non-defense aircraft also helped aerospace and defense stocks.

What is the Defending America ETF?

 Defending America is an exchange traded fund (ETF) that tracks an index of U.S. equities in the aerospace and defense sector. This fund includes a broad range of companies that manufacture commercial and military aircrafts and other defense equipment.

Interesting facts: Boeing has produced some of the most advanced military products over the last 70 years, such as the B-52 bomber, Minuteman nuclear missiles, Apache attack helicopters, and the F-15 and F-18 fighter jets. Lockheed Martin manufactures the F-16 fighter jets and the Black Hawk helicopter, as well as the F-22 stealth fighter. Raytheon produces the Tomahawk cruise missiles.

What’s in the fund?

The underlying fund, the iShares U.S. Aerospace & Defense ETF, includes 38 companies that lead the defense industry.

Aerospace and defense constitute more than 95% of the fund, but other holdings also include IT services and contracting, infrastructure, and outdoor sporting and hunting equipment.

Defending America ETF: What are the risks?

It’s important to remember this fund focuses on just one sector, known as the aerospace and defense industry. Other funds may have a more general focus, investing in companies across a variety of industries, which means they are more diversified.

Defending America tends to invest in the stocks of a smaller number of companies in a single industry. That can increase volatility.

Source: Tradeview. Chart operates in real time, with delays. *See Footnote

By Stash Team

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