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Big Growth for Aerospace Stocks, ETFs

editor@etftrends.com (ETF Trends)

Several aerospace and defense exchange traded funds raced to record highs Monday following reports that Northrop Grumman Corp. agreed to buy Orbital ATK Inc. for $7.8 billion, but there are more catalysts ahead for these ETFs, which are already among this year's best-performing industry funds. The iShares U.S. Aerospace & Defense ETF (ITA) , the largest fund in the group, is surging this year and hit a record high Monday. ITA is a cap-weighted ETF, meaning it has larger weights to big-name defense stocks, including Dow components Boeing (BA) and United Technologies (UTX). Aerospace and defense stocks are part of the broader industrial sector and have been important drivers of the sector’s performance over the past year. In fact, aerospace and defense names have been industrial leaders. “The global aerospace and defense industry is likely to experience stronger growth in 2017. The report indicates that the industry has experienced multiple years of positive but a subdued rate of growth and in 2017, the aerospace and defense industry is estimated to grow by about 2.0 percent,” according to Deloitte. Rivals to ITA include the PowerShares Aerospace & Defense Portfolio (PPA) and the SPDR S&P Aerospace & Defense ETF (XAR) . XAR is an equal-weight ETF. PPA holds 50 stocks “involved in the development, manufacturing, operations and support of US defense, homeland security and aerospace operations,” according to PowerShares. XAR also joined ITA in Monday's all-time high club. PPA, which is up almost 20% year-to-date, resides within pennies of a record high. “Rising global tensions have led to increasing demand for defense and military products in the Middle East, Eastern Europe, North Korea, and the East and South China Seas. This is in turn resulting in increased defense spending globally, especially in the United Arab Emirates (UAE), Saudi Arabia, South Korea, Japan, India, China, Russia," according to Deloitte. Related: Aerospace ETFs Keep Flying Higher Politics are helping aerospace and defense ETFs, too. A defense bill is expected to be approved Monday by a wide margin on bipartisan support as President Donald Trump, who has not voiced any intent to veto the measure, pushes for cooperation with congressional Democrats, reports Richard Lardner for the Associated Press. As ETF Trends reported Monday, “The Senate bill would provide $640 billion for core Pentagon operations, including purchasing weapons and paying troops, along with another $60 billion for wartime missions in Afghanistan, Iraq, Syria and elsewhere. The bill would also include $8.5 billion allocated to strengthen U.S. missile and defense systems in light of North Korea’s nuclear program and missile tests that are seen as a clear threat to U.S. and its allies.” For more information on the defense industry, visit our aerospace & defense category. Read more on ETFtrends.com