U.S. Global Launches Technology And Aerospace & Defense ETF: Why Its Allocation Makes Sense

The launch of the U.S. Global Technology and Aerospace & Defense ETF WAR on Dec. 30, 2024, and its subsequent debut on the New York Stock Exchange, is another feather in the cap for U.S. Global Investors Inc GROW extensive suite of ETFs targeting specific sectors. The fund aims to bring investors into the areas of advanced technology, defense and aerospace with an expense ratio of 0.6%.

The ETF holds total net assets of $1 million, per the company’s fact sheet, and rebalances quarterly. Holdings are split, with the following 10 holdings equally representing seven percent each of the fund: Applied Materials AMAT, Booz Allen Hamilton Holding Corp. BAH, General Dynamics Corp GD, Hexcel Corp HXL, Leidos Holdings Inc LDOS, and NVIDIA Corp NVDA. Other notable holdings include Rheinmetall AG, Cohort plc, Cognyte Software and F5, each constituting 4% of the portfolio.

A general breakdown of the ETF holdings looks like this: data centers, homeland protection, aerospace and defense, cybersecurity, and semiconductor. All these sectors are interconnected in today’s global economy.

Interestingly, 28% of the ETF's technology sector exposure will consist of semiconductor stocks. This is important as the chip industry has been in the spotlight for a while now for its lucrative outlook. According to a recent PwC report, global semiconductor revenues are anticipated to grow "more than twice as fast as global GDP, reaching over $1 trillion by 2030." Thus, a larger exposure in this area makes sense.

Also, another 28% of the fund's overall holdings will go to Cybersecurity, an area that needs intense R&D and consistent advancements to tackle the growing sophistication of global cybercrimes, including cyberespionage, a major headache for governments.

The stocks included in this actively managed fund will be chosen subject to some quantitative and fundamental parameters. Also, there is a possibility for the fund to invest in foreign companies and emerging markets. The fund prospectus currently states that its exposure to companies in the U.S. is 83%, U.K. is 7%, Germany is 7%, France 3% and Norway 3%.

The ETF issuer has a note of warning to investors in its press release: "The fund's concentration in the securities of a particular industry namely Aerospace and Defense, Cybersecurity and Semi-conductor industries as well as geographic concentration may cause it to be more susceptible to greater fluctuations in share price and volatility due to adverse events that affect the Fund's investments."

Nonetheless, the defense industry presents a significant investment opportunity due to various global factors.

Russia’s invasion of Ukraine, tensions with China and heightened military spending especially in Europe due to the almost doubling of arms imports between 2019 and 2023 will require high levels of defense spending.

Advanced technologies in warfare are transforming war; countries are heavily investing in AI, hypersonic missiles, and autonomous weapons, with the example being China.

As detailed by U.S. Global ETFs, cyber threats are also rising, with a 75% increase in global cyberattacks and leading to high investments in cyber security infrastructure. Bipartisan U.S. defense spending and increases in NATO military spending add weight to the potential growth of this sector. Another reason for European defense system modernization and the reduction of U.S. reliance on their systems is to grow more independent.

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Photo: Courtesy General Dynamics