Sorry, it has been a hot minute since my last ETF pick! But don’t worry, I’ve got a winner for you! Let me start by asking a question: If you had to pick an industry that would always get a large check every year from the gov’t, what would you pick? How about the defense industry…the US defense budget for this year is $700B…that’s a 700 with a B! And, I don’t envision defense spending going down anytime soon. So, how can you capitalize on your tax dollars being put to good use? You can hand pick from stocks like Boeing (BA), Northrop Grumman (NOC) and Lockheed Martin (LMT)…or you can buy them all using the iShares U.S. Aerospace & Defense ETF (ITA).
Portfolio and Fees – ITA gives you exposure to 38 different companies from the defense sector so that you don’t have to pick individual winners from this group (though I’m a giant Boeing fanboy and own it separately). The largest five holdings (Boeing, United Technologies (UTX), Lockheed, Northrup and Raytheon (RTN)) make up nearly 40% of the ETF’s holdings so you get a lot of exposure to these industry giants. For this ETF, iShares charges a very low management fee of 0.43% annually and there are no other defense ETFs with a lower fee according to FeeX (btw, this is a great website for finding the lowest cost ETFs and Mutual Funds!).
Returns – When it comes to returns, ITA over the last 5 years (22.87% avg) and 10 years (14.26% avg) has absolutely left the S&P 500 in the dust (12.85% and 9.04% during those stretches). A $1K investment in ITA ten years ago would be worth approximately $3.8K today vs. $2.4K had you put that money in the S&P 500. While you can see that both returns are good, you don’t need to be a math whiz to see the domination of ITA! To put the cherry on top, ITA also pays a dividend of just under 1% annually as a little extra bonus!
Recent news regarding possible peace in Korea as well as the potential tariffs between the US and China has impacted defense stocks. IMO this provides a great buying opportunity into a sector that tends to be one of the market leaders. Personally, I feel like the only thing that’ll slow down defense spending is….well…nothing…minus a zombie apocalypse or something of that nature!
Conclusion – This one really comes down to whether or not you believe in the long-term profitability of defense companies. If you have faith that companies like Boeing and Lockheed will continue to get large gov’t contracts into the foreseeable future and you’d like to make some money off of this fact, then look no further than ITA for your portfolio! If you like this sector so much that you’d like to triple down on it, then check out DFEN as it’ll provide triple-leveraged exposure to the defense sector (NOTE: Do not buy leveraged ETFs without consulting a financial professional!)
Before purchasing any stocks or ETFs, you should do your own research and consult a financial professional because, disclaimer, I’m not a paid finance professional. You can research ETFs like ITA for free on websites like Seeking Alpha and MarketWatch amongst other free online sources. Check out how my previous picks have done if you’d like. You can look forward to another stock pick in the coming weeks!