Defense ETFs Breaking Out

Despite recent a recent slowdown of government spending within the aerospace and defense industry there is hope for the sector. The recent geopolitical situation in the Middle East, Ukraine, and many other hotspots around the world have provided a positive outlook for many aerospace and defense companies.

Even though the aerospace and defense stocks only represents 1.6 percent of the S&P 500, defense companies such as Lockheed Martin Corp LMT, Raytheon Co RTN, and General Dynamics Corp GD are in the midst of an impressive rally. An ETF is the perfect way to capitalize on the recent success of the sector as a whole without taking company-specific risk.

Highlighted below are two aerospace and defense ETFs that have benefited from the rallies in the above-mentioned stocks.

The PowerShares Aerospace & Defense ETF PPA consists of 52 publically traded companies that are involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. The top individual holdings, all making up 6.4 percent of the portfolio include LMT, GD, and Honeywell International Inc HON. The ETF is up 11 percent year to date and 7 percent over the last six months. It is currently sitting at an all time high of $34.65. A pullback to the $34 area would be a nice buying opportunity. It has an expense ratio of 0.66 percent.

Another aerospace ETF that has performed well as of late is theiShares U.S. Aerospace & Defense ETF ITA. The ETF tracks 38 U.S publically traded companies that manufacture commercial and military aircrafts and other defense equipment. The ETF is broken down with 53 percent of the holdings in aerospace and 44 percent in defense. The top individual holdings include United Technologies Corp UTX making up 8.6 percent of the ETF, Boeing Co BA at 8.5 percent, and LMT coming in at 6.7 percent. ITA is up 7 percent year to date and 5 percent over the last six months. The ETF is within one percent of a new all-time high that was hit in June of this year. A close above $114.42 would signal a breakout and subsequent buying opportunity. The aerospace and defense ETF has an expense ratio of 0.43 percent.

It is hard to argue that the world is not becoming a far more dangerous place as time goes on. Aerospace and defense companies will look to capitalize on this over the long-term with new innovative products that will keep countries safe from any potential threats.