ETFs Cushion Blow of Boeing's Stock Turbulence
Shares of Boeing Co., whose stock is held in more than 200 ETFs, jumped after the manufacturer of the troubled 737 Max airplane said its chief executive officer would be stepping down at the end of the year.
Boeing stock rose 1.4% on Monday. The iShares U.S. Aerospace & Defense ETF (ITA), the exchange-traded fund with the largest Boeing share at 16%, added 0.2%. ITA's stake, valued at $950 million, is far smaller than that held by the fund with the largest overall Boeing stake, Vanguard Total Stock Market ETF (VTI), which slipped less than 1%. That fund's Boeing stake of 19 million shares is valued at $5 billion, according to etf.com data.
CEO Dave Calhoun is stepping down at the end of this year after four years in the post where he was unable to put an end to quality problems with the 737 Max and eliminate snafus like doors blowing off of planes and manufacturing glitches. Boeing's Chairman Larry Kellner is also being replaced and Stan Deal head of its commercial aircraft business, will depart immediately.
ITA and other Boeing-heavy ETFs incremental moves on the Boeing news play into the reasons why investors prefer ETFs over owning a single stock as a way to reduce risk.
“The diversification that ETFs provide tends to make it so a single stock has limited impact on investor returns—usually,” said etf.com analyst Sumit Roy.
“Sometimes weightings in single stocks can be substantial, such as in narrower ETFs that hold a relatively small number of stocks, or ETFs that target industries where one company dominates," he said. "But even in those cases, moves in a single stock—unless they are huge—tend to get watered down by the rest of the portfolio."
While Boeing is up 5% over the past five days, the shares are down 25% year to date, compared to a 10% rise in the S&P 500. Over the past five years, Boeing has dropped 46% while the S&P 500 has added 87%, according to charts on Yahoo Finance. In that time, ITA has gained 6.6%
ITA has lost $185 million in outflows since January. Even while Boeing's poor performance has contributed to percentage point losses, its other holdings have prevented Boeing's stock from tanking the fund.
Boeing is also a major part of the $18.5 million leveraged Direxion Daily Aeropace & Defense Bull 3X Shares (DFEN), which is up 4% to date and the $52 million First Trust Indxx Aerospace & Defense ETF (MISL), which has seen gains of 5% year to date.
Boeing Quality Control Problems
While investors cheered the leadership change, potential headwinds exist. Calhoun’s departure comes after a slew of quality problems and manufacturing slowdowns at the company, especially with the Boeing 737 Max plane model.
Criticism about quality problems escalated in early January when the panel of a new Boeing 737 fell out minutes into an Alaska Airlines flight. The Federal Aviation Administration announced in late January they were pausing Boeing’s production of tis 737 Max aircraft.
In an interview on CNBC Monday, Calhoun said that his decision to leave as “100% his own.
Boeing CFO Brian West said last week that the company would see a major cash outflow for the first quarter this year after a slower output and regulatory scrutiny.
Contact Lucy Brewster at lucy.brewster@etf.com.
