The Sky’s the Limit with This Aerospace and Defense ETF

This article is the sixth in a series exploring equal-weight ETFs.

For investors looking to diversify their portfolio, the sky is the limit with the SPDR S&P Aerospace & Defense ETF (NYSE:XAR). 

This exchange-traded fund (ETF) has a unique composition compared to similar funds. The fund is primarily comprised of aerospace and defense stocks, as defined by the Global Industry Classification Standard, but it also invests in other stocks as well. 

XAR has a holdings ratio of 40/40/20, meaning that the fund invests those ratios in large-cap, mid-cap and small-cap stocks, respectively. That mix allows for ample diversity and market access. The majority of the fund’s holdings, roughly 80%, are allocated to the aerospace and defense sector, but the remaining 20% of its portfolio is spread across the industrial and capital goods sectors. 

The U.S.-based ETF uses a random sampling technique to track the performance of the S&P Aerospace & Defense Select Industry Index. This method allows the fund to track data performance free of bias and ensures that its holdings reflect the characteristics of the larger index.

XAR has an expense ratio of 0.35% and a hefty dividend yield of 0.72%. The fund currently has $1.24 billion in assets under management. The fund, which was formed in 2011, saw a steep drop in early November 2020, but then shot back up into December. Since February of this year, the fund has seen a fair amount of price activity but has managed to remain in an uptrend. As seen in the company’s latest stock chart, there have been several small dips this year, but none too large.

Given the sector, the fund has undoubtedly been affected by the less-than-even-keeled political climate of late. However, its price is once again climbing higher and it opened today at $121.20, which is at the high end of its 52-week range.

Chart courtesy of stockcharts.com

The fund’s top five holdings include Northrop Grumman Corporation (NOC), 4.65%; Spirit AeroSystems Holdings, Inc. Class A (SPR), 4.60%; HEICO Corporation (HEI), 4.58%; Raytheon Technologies Corporation (RTX), 4.49%; and Lockheed Martin Corporation (LMT), 4.39%. 

For investors looking to soar into the aerospace & defense sector, the SPDR S&P Aerospace & Defense ETF (NYSE:XAR) may be a good opportunity. Not only does it allocate a portion of its holdings into different sectors, but it also invests in large-, mid- and small-cap stocks. Further, this fund is less expensive than others in its arena. 

However, as this fund focuses mainly on one specific area, and a large percentage of its holdings are in large-cap stocks, it may not be the best fund for investors looking to expand their long-term portfolios. But it could seem inviting to those who are more interested in tactical trading and looking to overweight this segment of the market. Interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

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.