Military Equipment Etf - Buy something you'd be perfectly happy with if the market closed for just 10 years - Warren Buffett
IShares U.S. The Aerospace & Defense ETF (BATS: ITA ) seeks to track the performance of the Dow Jones US Aerospace & Defense Index. Equity in FÍ's portfolio is primarily large stocks with a competitive advantage over their smaller peers. These stocks are likely to benefit from long-term growth trends in the aerospace and defense industries. Therefore, investing in this fund could be a good option for investors with a long-term investment horizon.
Military Equipment Etf
Companies operating in this sector are usually quite large and grow slowly. Given that much of their business comes from long-term government contracts, these companies are considered relatively stable. Given that US government military spending is expected to increase in the coming years, ITA could be a viable option for exposure to this sector.
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However, investors must note that this fund is more concentrated in the top names, with its top 10 holdings accounting for over 70% of its total exposure. Therefore, ITA would be a solid choice for investors looking for exposure to only the best names in the industry despite a relatively undiversified portfolio.
The fund's AUM is ~$2.95 billion and has a growing dividend yield of 1.07%, which is relatively higher than its peers. The fund's expense ratio is 0.42%, which is around the average of its peer group. Year to date, the fund is down 15.0%.
As we observe the top 10 properties, we note that they are financially strong and have established themselves as industry leaders. In addition, each of these companies has significant economies of scale.
As we can see in the chart below, US government military spending has been increasing over the past 20 years. Although we saw a decline in spending from 2010-2015, spending has increased since then and is likely to increase further in the future. This bodes well for ETFs like ITA, which are heavily exposed to companies that provide such hedging tools.
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Talking about the commercial aviation sector, it has experienced a decline in deliveries in 2019 due to production issues in certain aircraft models. Even the order discount for commercial aircraft has declined from its 2018 peak of 14,700 aircraft. However, growth in the commercial aviation sector is likely to improve from 2020 onwards as long-term demand for commercial aviation remains strong. Nearly 40,000 units are expected to be produced over the next two decades. This will bode well for ETFs like ITA, which have high exposure to aircraft manufacturing companies like Boeing.
In terms of valuation, ITA is relatively cheap compared to similar ETFs. As can be seen from the table below, ITA's valuation on P/E, P/B & P/S is lower than the average of its peers.
V/E P/B P/S iShares U.S. Aerospace & Defense ETF (ITA) 21.63 2.42 1.42 SPDR S&P Aerospace & Defense ETF (XAR) 24.87 2.50 1.20 Invesco Aerospace & Defense ETF (PPA) 21.78 2.67 TFB (PPA) 21.78 2.61 2.52 1.42 1.42 1.42 1.42 1.42 1.42 102 102 102 102 104 Invesco Aerospace & Defense ETF 19.71 2.13 0.97 Invesco DWA Industrials Momentum ETF (PRN) 30.06 5.25 2.92 Click to enlarge
ITA XAR PPA PSCI PRN Issuer iShares State Street Invesco Invesco Inception 05/01/2006 09/28/2011 26/10/2005 04/07/2010 10/12/2006 Expense Ratio 0.45 % 0. AUM $2.96bn $1.25 bn $ 716.87mm $ 57.39mm $ 133.51mm Holdings 39 35 54 93 37 Assets in 10 71.96% 42.54% 55.64% 24.82% 39.64% 24.89% 0.6% 24.82% 0.9% 6.9% 0.9% 25,4 CAGR 8.6 3.4 .40% (2.73%) 3.95% (0.34%) Click to enlarge
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ITA is the largest ETF investing in the aerospace and defense sector with ~$2.96 billion in assets under management. While ITA does not have the lowest expense ratio, it is not the highest among peers either. With a ratio of 0.42%, it lies in the middle of its peer set. Another important observation to make is the TTM product offered by ITA. The required return on FÍ is 1.07% and is significantly higher than peers. Furthermore, Framsfl. has seen much higher dividend growth than peers, some of which have negative dividend growth over the past three years.
Diversification Risk: Investors need to be aware that ITA is the least diversified fund compared to the options available. He has ~72% of his portfolio accumulated in his top 10 holdings. This figure is significantly higher compared to its peers. However, it is also important to keep in mind that FÍ comes into contact with the best industrial and defense companies. Investors with a higher risk appetite would therefore not be deterred by low asset diversification.
Industry Concentration Risk: Given that most of ITA's exposure is to the aerospace and defense industry, any adverse policy decisions could affect the performance of ITA's holdings. Although unlikely, reduced military spending by the US government would hurt the ITA portfolio.
In short, ITA's portfolio consists of high-quality aerospace and defense stocks that have long growth prospects over the coming decades. ITA's valuation also appears to be relatively cheap at the moment, making it a fair price for new investors to enter. Investors concerned about high portfolio risk concentrations should be aware that the aerospace and defense industries have high barriers to entry. Therefore, it is not easy for new companies to replace established leaders in an industry exposed to FI. That said, ITA can indeed be a strong bet for investors with a long-term investment horizon.
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Disclosure: I/we have no positions in any of the stocks mentioned and have no plans to initiate any positions within the next 72 hours. I wrote this article myself and it expresses my own opinion. I am not compensated for it (except from Seeking Alpha). I am not in a business relationship with companies whose shares are mentioned in this article.
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If you have ad blocking enabled, you may be blocked from continuing. Turn off your ad blocker and refresh. Russia's military offensive against Ukraine has targeted Aerospace and Defense stocks and related exchange-traded funds (ETFs).
The Dow Jones US aerospace and defense index is up nearly 10% year-to-date (YTD). More than half of those gains came in the last month.
Defense spending around the world remained strong even during the pandemic. Currently, the United States ranks highest with an annual defense budget of $770 billion. Next come China, Russia, Great Britain, Germany, India, Japan, South Korea, Saudi Arabia and Australia.
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It is expected that the current war will likely lead to an increase in the global military budget. Germany has already promised to increase defense spending.
[A&D] companies are expected to focus on innovation to develop new technologies and solutions, create new markets and expand growth opportunities.
With this in mind, this article introduces two A&D funds that may appeal to some readers looking to diversify their portfolios.
The iShares US Aerospace & Defense ETF (NYSE: ITA ) invests in stocks of US A&D companies. These names typically manufacture commercial and military aircraft and other defense equipment. The fund was first registered in May 2006.
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ITA, which tracks the Dow Jones US Aerospace and Defense Select Index, owns 33 properties. The top ten stocks in the portfolio account for nearly three-quarters of the approximately $3 billion in net assets.
Raytheon Technologies (NYSE: RTX ), Boeing (NYSE: BA ), Lockheed Martin (NYSE: LMT ), Northrop Grumman (NYSE: NOC ), L3Harris Technologies (NYSE: LHX ), General Dynamics (NYSE: GD ) and Howmet Aerospace. (NYSE: HWM) lead the names on the list.
The ETF gained more than 7.1% in the last 12 months and 2.2% in 2022. The ITA also saw a multi-year high in June 2021.
The following P/E and P/B ratios are 26.52x and 3.08x. Given the rapid rise in prices recently, ITA could turn a profit soon. A possible decline towards the $103 level or below would add a margin of safety for investors looking for a pure A&D fund.
Best Defense Etfs
Our second fund, SPDR S&P Kensho Future Security (NYSE:FITE), provides access to companies that are driving technological innovation in the security sector. Such companies include names in cyber security, border security, robotics, drones, space technology, virtual reality
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