Aerospace & Defense ETFs have jumped double digits since the invasion of Ukraine

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Aerospace and defense exchange traded funds have seen a double-digit jump in their underlying value ever since Russia invaded Ukraine on Feb. 24th. With the military conflict spotlighting geopolitical risks in general, ETFs that support defense equipment have caught a topside bid.

Four ETFs in particular that have experienced a substantial upside move are the Direxion Daily Aerospace & Defense Bull 3X Shares (NYSEARCA:DFEN), iShares U.S. Aerospace & Defense ETF (BATS:ITA), SPDR S&P Aerospace & Defense ETF (NYSEARCA:XAR), the SPDR S&P Kensho Future Security ETF (NYSEARCA:FITE), and the Invesco Aerospace & Defense ETF (NYSEARCA:PPA).

Since the invasion DFEN is +30.1%, FITE +13.9%, XAR +12.7%, ITA +9.3%, and PPA is +11.4%.

DFEN has led all four funds from a performance standpoint as it is a 3X leveraged ETF and is meant to accentuate swings in the underlying sector. Its top holdings are Raytheon Technologies (NYSE:RTX) and Boeing (NYSE:BA), weighted at 16.63% and 13.62%.

On the other hand, ITA was the poorest performing ETF but has the most significant assets under management, with $2.74B dedicated to the fund. ITA also has its top two holdings in RTX and BA but with a more densely 40% weighting in the two. ITA has a weighted position of RTX at 22.19% and 18.19% in BA.

XAR is the cheapest option in the aerospace and defense ETF market, with an expense ratio of 0.35%. Additionally, the ETF has a different top two on the leaderboard. XAR has top positions in Mercury Systems (NASDAQ:MRCY) weighted at 5.07%, and Lockheed Martin (NYSE:LMT) at 4.77%.

FITE offers investors the broadest diversification among defense ETFs as it has 70 holdings, which is 29 more than DFEN. The top holdings in FITE are LMT at 1.94% and VMware (NYSE:VMW) at 1.90%.

Moreover, YTD DFEN is +21%, FITE -2.4%, XAR +4.3%, ITA is +7.8% and PPA +7.5% is All have outperformed the benchmark SPDR S&P 500 Trust ETF (NYSEARCA:SPY), which is -8.9% in 2022.

For greater analysis of DFEN, ITA, XAR, and FITE, check out Seeking Alpha’s fundamental and quantitative analysis of each of the four funds.

Comments

[Ronaldo123]

All 29 DOW components are up green except LMT. LMT has reached historically high yesterday due to the Ukraine invasion. I don't think at current price range is sustainable for long. I'm going to take profit before too late.

[DividendInvestorInMinnesota]

@Ronaldo123 Yep, I trimmed some at $449.75.

[DividendInvestorInMinnesota]

Looks like a little profit taking for LMT today. I skimmed a bit yesterday.

[Orangejulius]

The likelihood that NATO and EU member states will need to increase military spending to counter Russian aggression is the primary reason. It's no surprise that when Olaf Scholz announced a return to 2%+ of GDP going to defense spending from only 1.5%, the entire defense sector jumped dramatically on an otherwise red day for the market.

The truth of the matter is that the geopolitical climate ends up influencing defense spending more than who is in the White House. Anyone selling down or shorting defense stocks just got a lesson in that.

Long LMT, LHX, RTX.

[taxman100]

@Orangejulius I'll believe it when I see it. From the U.S. perspective, the main goal of remaining in NATO is to keep Europe dependent on the United States for defense. The last thing the U.S. wants is the potential of Europe/EU becoming a competitor militarily to the U.S.

At least regarding foreign policy, Europe is somewhat a vassal state to the U.S.

[taxman100]

Kind of the purpose of getting involved somewhere anywhere in the world, now that the gravy train of Afghanistan is over.