Exchange Traded Funds (ETFs)

Well-Rounded Aerospace and Defense Fund Delivers Targeted Exposure

This week’s featured exchange-traded fund (ETF), the SPDR S&P Aerospace & Defense ETF (XAR), tracks an index of U.S. aerospace and defense companies.

The fund currently has $1.01 billion assets under management and invests at least 80% in its holdings. Unlike some of its peer aerospace and defense funds, which tend to focus more on large-cap companies and often the very largest names, XAR aims to achieve a 40/40/20 weighting composition for large-, mid- and small-caps, respectively.

This mix of holdings allows XAR to deliver targeted coverage within the aerospace and defense sector to its investors. Although XAR does not offer options, it has attracted the attention of block traders with its strong underlying liquidity and a reasonable fee of 0.35%.
The fund has quarterly distributions and a dividend yield of 1.09%. This is relatively low when compared to competing funds like ITA (which is also more than four times the size of XAR), but XAR seeks a performance advantage with its focus on relatively smaller companies.

The defense sector has had a strong rally for the year, fueled by President Trump’s avowed support for the military and by threatening missile tests and words against the United States from North Korea’s dictator. XAR has been well-positioned to take advantage with its concentrated approach.

Year-to-date, XAR has returned 26.79%, beating out the S&P 500’s return of 14.16%. Analysts at State Street Global Advisors (SPDR) have put together a projected 3-5-year earnings per share growth estimate of 13.10% for XAR.

XAR currently has 35 holdings. The top five are Orbital ATK Inc., 4.37%; Triumph Group Inc., 4.29%; KLX Inc., 4.11%; Huntington Ingalls Industries Inc., 3.96%; and Hexcel Corporation, 3.94%.

For those seeking a fund to increase their exposure to the aerospace and defense segment, I encourage you to look at SPDR S&P Aerospace & Defense ETF (XAR).

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.