generic An Aerospace & Defense ETF Hits the Market
First Trust recently launched a fund on the Aerospace and Defense industry namely First Trust Indxx Aerospace & Defense ETF MISL.
First Trust Indxx Aerospace & Defense ETF (MISL) in Focus
The First Trust Indxx Aerospace & Defense ETF looks to track investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the Indxx US Aerospace & Defense Index.
The fund has a total of 33 stocks. Lockheed Martin (8.66%), Northrop Grumman (8.21%) and Raytheon Technologies (8.03%) are the top three stocks of the fund. Aerospace & Defense (86.08%), Professional Services (13.36%) and Diversified Telecommunication Services (0.56%) are top three sectors of the fund. The fund charges 60 bps in fees.
How Does It Fit In a Portfolio?
Aerospace and defense stocks have rallied lately with rising geopolitical tensions. The Russia-Ukraine war is unlikely to end soon, North Korean saber rattling has been on the rise, and China-Taiwan tensions have flared up since President Xi secured a third term in office.
Rising geopolitical tensions could result in increased defense spending by the United States and its European allies as they try to counter military ambitions of China and Russia. The midterm elections could result in split control of Congress leading to legislative gridlock.
Increasing defense spending is one of the very few areas that the two parties agree on. Expansionary budgetary amendments adopted by the U.S. government for defense in recent times have acted as a major tailwind (read: Why Aerospace & Defense ETFs are Rising).
In July 2022, the U.S. House of Representatives passed a bill on paving the way for the defense budget to exceed $800 billion next year, authorizing $37 billion in spending on top of the record $773 billion proposed by President Joe Biden.
The sector has been beating the S&P 500 consistently this year. Aerospace – Defense sector has returned 0.5% this year (as of Oct 28, 2022) versus a decline of 17.2 % in the S&P 500. The sector is also up 13.9% past month versus 5% gains in the S&P 500. In the past three months, the fund is up 8.6% versus a decline of 3.9% in the S&P 500.
Competition
The space has been so far ruled by three ETFs namely iShares U.S. Aerospace & Defense ETF ITA, Invesco Aerospace & Defense ETF PPA and SPDR S&P Aerospace & Defense ETF XAR. ITA, PPA and XAR have asset base of $3.84 billion, $1.53 billion and $1.23 billion, respectively. The funds charge 39 bps, 61 bps and 35 bps, respectively.
Though the newbie’s expense ratio is in-line with the ones charged by existing products, MISL’s expense ratio is still on the higher range. So, one might not see massive amount of asset generation for MISL.
There is also a leveraged ETF in the space namely Direxion Daily Aerospace & Defense Bull 3X Shares DFEN also has an asset base of $175.2 million.
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iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports
Invesco Aerospace & Defense ETF (PPA): ETF Research Reports
SPDR S&P Aerospace & Defense ETF (XAR): ETF Research Reports
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN): ETF Research Reports
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