Last week, Boeing (NYSE:BA) announced a delay in the delivery of its latest jet airliner. Not only did this send the price of Boeing shares down, it sent the shares of Boeing suppliers reeling as well. Large-cap growth standouts like Honeywell (NYSE:HON), Rockwell (NYSE:COL) and Spirit Aerosystems (NYSE:SPR) all felt the pain.
One might be quick to surmise that... where there is delivery smoke, there's profitability fire. And by extension, the Aerospace/Defense industry should have shown additional signs of difficulty as the week progressed.
Yet Boeing's bad day did not translate into an exodus from the sector. In contrast, the major Aerospace/Defense indexes clocked out the week near record highs.
1. PowerShares Aerospace & Defense (NYSEARCA:PPA). This investment seeks results that correspond generally to the price and yield of the SPADE Defense Index. On 10/12, PPA nearly eclipsed its recent high of 24.2 on 10/9 by finishing the day in striking range (24.1). The PowerShares Aerospace & Defense Fund (PPA) holds big fish from Lockheed to Raytheon to Northrop to Boeing, with the latter accounting for approximately 7% of the fund's overall performance.
2. iShares Dow Jones US Aerospace & Defense (ITA). This investment pursues results that track the price and yield performance of the Dow Jones U.S. Select Aerospace & Defense Index. On 10/12, ITA nearly matched the high set on 10/5 of 71 by finishing Friday at 70.96. Aerospace companies include manufacturers, assemblers and distributors of aircraft and aircraft parts (e.g., Boeing, Precision Castparts, etc.). Defense companies include producers of components and equipment for the defense industry (e.g., General Dynamics, L-3 Communications, etc.).
It appears that optimism for the segment is still warranted. Specifically, if large-cap growth/tech performs well in the final quarter of calendar years, and if aerospace/defense is viewed as a safer haven during times of economic uncertainty, the iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA) may indeed be worthy of the price for admission.
One can see that Aerospace/Defense picked up 40% gains in a single year, while the S&P Select Technology Spider (NYSEARCA:XLK) gathered 22% and the S&P 500 SPDR Trust (NYSEARCA:SPY) logged 15%. That's superior performance... indeed!
Yet, there's a piece of this aerodynamic puzzle that is even more impressive; that is, most investments with significantly more upside gain have significantly more downside risk. Think international. Think emerging markets.
In contrast, the PowerShares Aerospace & Defense Fund (PPA) and the iShares Dow Jones US Aerospace & Defense Fund (ITA) fell even less than the broader technology index or the S&P 500 during the global credit crisis. Now that's risk-adjusted performance!
Disclosure Statement: As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.