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Aerospace and Defense ETFs Soar on U.S-Saudi Deal

Zacks Equity Research

President Trump’s maiden international trip led to a rally in the aerospace and defense sector. Though Trump is under major political scrutiny back home for alleged links to Russia during his presidential campaign and for the abrupt ousting of former FBI director James Comey, the latest agreement  shows that he is an exceptional deal maker.


Though the President’s multibillion dollar arms deal amounts to $350 billion over a period of 10 years, an agreement worth $110 billion is set to be implemented with immediate effect. This deal comes into force as the Kingdom prepares itself to deal with security threats from Iran and to further its fight against terrorism with the U.S. as an ally.


The Kingdom of Saudi Arabia is one of the major hubs for U.S. arms sales. It is not new for defense stocks to rally following such deals. Among the gainers were Lockheed Martin LMT, Raytheon RTN, United Technologies Corporation UTX, Boeing BA, Northrop Grumman NOC, and General Dynamics GD. The deal specifics were however not disclosed.


Shares of LMT were up 1.55% on May 22, RTN was up 0.57%, UTX was up 0.41%, BA was up 1.61%, NOC was up 0.17%, and GD was up 0.96% (read: ETFs in Focus on Aerospace and Defense Earnings).


This deal backs Trump’s America first strategy. The agreement between the two nations will turn out to be beneficial for American companies and is expected to create thousands of jobs in the process.


Let us now discuss some aerospace & defense ETFs with high exposure to the companies discussed.


iShares U.S. Aerospace & Defense ETF ITA


This fund has AUM of $2.91 billion and charges a fee of 44 basis points a year. The fund has 9.40% exposure to Boeing, 9.20% to United Technologies, 7.70% to Lockheed Martin, 6.99% to General Dynamics, 6.44% to Raytheon, and 6.16% to Northrop Grumman (as of May 19, 2017). The fund returned 24.86% in the past one year and 9.93% in the year-to-date time frame (as of May 22, 2017). It closed 0.87% higher on May 22, 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 $585.07 million and charges a fee of 35 basis points a year. The fund has 4.20% exposure to United Technologies, 4.04% to Raytheon, 4.00% to General Dynamics, 3.99% to Northrop Grumman, 3.95% to Lockheed Martin, and 3.93% to Boeing (as of May 19, 2017). The fund returned 23.30% in the past one year and 7.91% in the year-to-date time frame (as of May 22, 2017). It closed 1.11% higher on May 22, 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 $589.8 million and charges a fee of 64 basis points a year. The fund has 7.17% exposure to United Technologies, 6.99% to General Dynamics, 6.79% to Boeing, 6.76% to Lockheed Martin, 5.69% to Raytheon, and 5.30% to Northrop Grumman (as of May 19, 2017). The fund returned 14.96% in the past one year and 8.43% in the year-to-date time frame (as of May 22, 2017). It closed 1.00% higher on May 22, 2017. It currently has a Zacks ETF Rank #1 with a Medium risk outlook.


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ISHARS-US AEROS (ITA): ETF Research Reports
 
SPDR-SP AER&DEF (XAR): ETF Research Reports
 
PWRSH-AERO&DEF (PPA): ETF Research Reports
 
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