Aerospace & Defense ETF Showdown – ITA, PPA, XAR
In today’s ETF showdown, we’re taking a look at Aerospace & Defense ETFs.
As you know, ETF providers like iShares, State Street, ProShares, and many others offer ETFs that sound similar. But just because they have a similar name, doesn’t mean they’ll have the same performance.
When your hard-earned money is on the line, selecting the right ETFs is crucial to maximizing your profits and minimizing your losses.
Just last year, investors were steering clear of Aerospace & Defense (A&D) stocks. They were afraid the automatic Federal budget cuts from the ‘fiscal cliff’ would derail the entire Defense sector.
But the deep cuts to Defense spending never came… the government continues to spend money on military aircraft, radar equipment, and weapons.
As a result, the A&D sector has taken off like it was shot out of a cannon this year. In fact, the A&D’s 30% year-to-date gains are handily beating the 20% rise in the S&P 500.
Let’s take a closer look at three ETFs focused on Aerospace and Defense.
The largest ETF by assets under management, or AUM, is the iShares US Aerospace & Defense ETF (ITA) with $114 million… It has more than double the amount of assets as the next biggest A&D ETF.
So far this year, ITA is up 30% and it’s up a whopping 46% from the 52-week low last November. It has an expense ratio of 0.48% and an annual dividend yield of 1.12%.
It tracks an index of market cap weighted A&D companies in the US. The top holdings are United Technologies (UTX) with 9.1% and Boeing (BA) with 8.7%.
Next, let’s look at SPDR S&P Aerospace & Defense ETF (XAR)… it only has about $20 million in AUM but its 33% year-to-date gain is the best performance among the three A&D ETFs.
XAR is a relative newcomer. So it doesn’t have a long track record. But it has been the top performing A&D ETF since it was first introduced in September of 2011. It also has the lowest expense ratio of 0.35% and a highest dividend yield of 1.51%.
This ETF tracks an index specifically designed for State Street’s SPDR. It uses an index that’s a modified equal weight index. This gives each of the 34 holdings an equal weighting.
Finally, let’s look at the PowerShares Aerospace & Defense Portfolio (PPA). It has $56 million in AUM.
So far this year, PPA is the worst performing A&D sector ETF with a 27% gain. And it trails the long run 3-year and 5-year gains of ITA by a wide margin. It has an expense ratio of 0.6% and it has a dividend yield of 1.2%.
PPA tracks an index based on the SPADE Defense Index. The Index is designed to identify a group of companies involved in the development, manufacturing, operations and support of US defense, homeland security, and aerospace operations.
It’s currently made up of 48 stocks. The top holdings are United Technologies with 6.6%, Lockheed Martin (LMT) with 6.4%, and Boeing with 6.4%.
Here’s the bottom line…
A&D ETFs are a clear example of the biggest ETFs by AUM not always being the best. XAR has been the top performing ETF this year, but it has a fraction of the assets of the older and more popular ITA from iShares.
Good Investing,
Corey Williams
Category: ETFs
