The aerospace and defense industry is a thriving segment of the economy that is fed billions of dollars annually.
iShares U.S. Aerospace & Defense ETF (NYSE:ITA)
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ITA provides exposure to 38 U.S. companies that manufacture commercial and military aircraft, in addition to other defense equipment. This ETF contains well-known industrial stocks such as United Technologies Corporation, The Boeing Companyand Lockheed Martin Corporation.
ITA currently has $332 million in assets under management and charges an expense ratio of 0.43 percent.
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So far this year ITA has struggled, gaining just 4.24 percent versus a total return of 9.74 percent in the broad SPDR S&P 500 ETF. This struggle reflects an overall sluggishness in the industrial sector that has seen these manufacturing stocks mired in a trading range for several months.
A break above the June high at $113 would be a bullish sign for this ETF and reassert an upward price bias.
PowerShares Aerospace & Defense Portfolio (NYSE:PPA)
PPA is another key ETF in this space. PPA tracks a wider universe of 52 holdings that comprise the SPADE Defense Index, including a wide range of large and small companies that coalesce to form a markedly different mix than ITA.
In fact, PPA has 15 percent of its portfolio dedicated to technology companies such as FLIR Systems, Inc. and ViaSat, Inc. These businesses develop cutting edge hardware and software solutions to support many of the defense capabilities that the government requires.
PPA currently has $134 million in total assets and charges a slightly higher net expense ratio of 0.63 percent.
So far this year, this ETF has a slight performance edge over ITA with a total return of 5.42 percent. That additional margin of strength is likely due in large part to the technology sector exposure included in this index.
Despite relatively tepid gains this year, both of these ETFs have a stable base of competitive companies that can provide focused exposure to a key segment of the industrial sector.
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