Gain Altitude With This Aerospace ETF
Aerospace and defense stocks are carrying the broader the industrial sector this year. The Dow Jones U.S. Select Aerospace & Defense Index is nearly nearly 15 percent year-to-date compared to 5.4 percent for the S&P 500 Industrial Index.
Active traders looking for more juice out of the long side of the aerospace and defense trade can consider the only leveraged exchange traded fund (ETF) dedicated to the group: the Direxion Daily Aerospace & Defense Bull 3X Shares (NYSE: DFEN).
What Happened
DFEN looks to deliver triple the daily returns of the aforementioned Dow Jones U.S. Select Aerospace & Defense Index. DFEN, like any other leveraged ETF, should be used over short time frames, not held for weeks or months, but the fund is up 15.61 over the past month even as some of the marquee aerospace and defense stocks have not been doing much for most of the summer months.
Boeing, which makes up 10.82 percent of the fund, has largely stayed between $330-360 for most of the last two months. Lockheed Martin, 6.98 percent of DFEN, has spent the last two months between $310-$330. Raytheon, 6.03 percent of the fund, has traded between $190-$200, said Direxion in a recent note.
Boeing Co. (NYSE: BA), Lockheed Martin Inc. (NYSE: LMT) and Raytheon Co. (NYSE: RTN) combine for over 23 percent of the Dow Jones U.S. Select Aerospace & Defense Index.
Why It's Important
Short-term traders may want to give DFEN a look right here, right now if recent momentum among aerospace equities remains firm. On Sept. 17, 17 non-leveraged ETFs hit record highs, three of which were aerospace and defense funds.
Looking ahead however, the sector is likely to have an upcoming catalyst in the form of the midterm congressional elections, said Direxion. Chris Higgins, senior equity analyst for Morningstar, recently said in a note that he expects the defense sector to continue to outperform in the long-term despite the midterms causing some potential volatility.
What's Next
Month-to-date, DFEN is one of the best-performing bullish leveraged ETFs in Direxion's lineup, according to issuer data.
Traders looking to play the political part of the aerospace trade may want to consider being long the group after mid-term elections if Republicans are able to limit expected losses in the House and retain or build on their Senate majority.
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