Geopolitical risks have been rising as North Korea refuses to stop its threats. Moreover, with countries expanding their weapons system, defense stocks have been rallying lately.
Is North Korea Driving Defense ETFs?
Per a Bloomberg article, the state-run Korean Central News Agency citing a statement by the Korea Asia-Pacific Peace Committee said on Thursday, “Japan is no longer needed to exist near us.” The statement further added, “The four islands of the archipelago should be sunken into the sea by the nuclear bomb of Juche”.
Han Tae Song, North Korea’s ambassador to the UN, told a UN conference, “The forthcoming measures by DPRK (the Democratic Republic of Korea) will make the US suffer the greatest pain it has ever experienced in its history.”
These threats come as UN passed new sanctions on North Korea. The sanctions are aimed at starving North Korea of oil to run its nuclear program by reducing oil imports by the country. Although the United States aimed at total oil embargo on North Korea, sanctions were watered down in order to secure China and Russia’s support, as they held veto power on the decision.
North Korea has received repeated warnings from the United States, that if it does not stop its nuclear tests, it will have to face significant military response. As a result, major nations have started focusing on their defense systems in order to prepare for any mishap.
The earnings performance for the sector has been impressive in the second quarter and is expected to continue in the third quarter as well. Moreover, a majority of companies from the sector beat earnings and revenue expectations in the second quarter.
The S&P Aerospace & Defense Select Industry Index is up 19% year to date compared with 11.6% increase for the S&P 500. Moreover, the Senate passed a motion on Sep 11 allowing the $696.5 billion National Defense Authorization Act to move forward.
We will now discuss a few ETFs focused on providing exposure to the Aerospace and Defense sector.
iShares U.S. Aerospace & Defense ETF ITA
This fund seeks to provide an exposure to the aerospace and defense industry. It has AUM of $4.10 billion and charges a fee of 44 basis points a year. The top three holdings for the fund are Boeing BA , Lockheed Martin Corp LMT and United Technologies UTX with 11.14%, 7.72% and 7.35% allocation, respectively (as of Sep 12, 2017). The fund has returned 33.8% in a year and 18.8% year to date (as of Sep 13, 2017). It currently has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
SPDR S&P Aerospace & Defense ETF XAR
This fund has AUM of $846.69 million and charges a fee of 35 basis points a year. The top three holdings for the fund are Spirit AeroSystems Holdings Inc. Class A SPR , Boeing and Rockwell Collins Inc. COL with 4.57%, 4.48% and 4.41% allocation, respectively (as of Sep 12, 2017). The fund has returned 33.1% in a year and 17.4% year to date (as of Sep 13, 2017). It currently has a Zacks ETF Rank #1 with a Medium risk outlook.
PowerShares Aerospace & Defense Portfolio ETF PPA
This fund has AUM of $728.5 million and charges a fee of 61 basis points a year. The top three holdings for the fund are Boeing, Lockheed Martin Corp and Honeywell International Inc HON with 7.66%, 6.92% and 6.58% allocation, respectively (as of Sep 12, 2017). The fund has returned 29.6% in a year and 16.9% year to date (as of Sep 13, 2017). It currently has a Zacks ETF Rank #1 with a Medium risk outlook.Discover More