FV Why Aerospace & Defense ETFs Are Soaring

Aerospace & defense stocks and ETFs are ripping higher, thanks mainly to rising hopes for a US-China trade deal and improving growth outlook. With worries about trade and growth receding, investors have been rotating out of defensive areas of market and into cyclicals.

Cyclical sectors are most exposed to economic growth and trade, and this rotation could continue if the economy remains on solid footing and trade situation improves. Fed’s dovish turn has also boosted riskier areas of the market. 

Rising geopolitical tensions have resulted in increased defense spending all over the world. Global air traffic continues to expand and rising middle class in emerging economies would be a key source of air travel demand going forward. This would continue to support the commercial aerospace businesses over the long-term.

The iShares U.S. Aerospace & Defense ETF (ITA - Free Report) is a market-cap weighted ETF. Boeing (BA - Free Report) gets almost 21% weighting in the fund. Other top holdings are Lockheed Martin (LMT) and United Technologies (UTX - Free Report).

The SPDR S&P Aerospace & Defense ETF (XAR - Free Report) follows an equal-weighted index while the PowerShares Aerospace & Defense Portfolio (PPA - Free Report) tracks a modified market-cap-weighted index.

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