The Aerospace And Defense Trade Continues To Look Hot

The veracity of some of the once ballyhooed "Trump trades" has waned in recent weeks, but there is still one that appears very much intact, at least in ETFs: aerospace and defense .And if recent headlines out of Washington and elsewhere are any indication, this trade won't be cooling off any time soon. 

The average year-to-date gain is close to 10 percent among the three largest, non-leveraged aerospace and defense ETFs, and all three currently reside near their record highs. 

The trade is also supplemented by the recent launch of the Direxion Daily Aerospace & Defense Bull 3X Shares DEFN, which seeks to deliver triple the daily returns of the Dow Jones U.S. Select Aerospace & Defense Index. 

DFEN debuted in early May as part of a broader suite of Trump trade-inspired leveraged ETFs from Direxion. 

The index tracked by DFEN is up over 11 percent year-to-date, no doubt helped by rallies in stocks like Boeing Co BA (up 26 percent), Lockheed Martin Corporation LMT (up 9 percent), and General Dynamics Corporation GD (up 13 percent). Those three companies combine to make up about 25 percent of the index.

For context, the S&P 500 is up a little under 8 percent for the year. 

For aggressive, sophisticated traders, DFEN makes for a way to increase near-term return potential with a group of stocks that are not always known for being exciting or sexy. Much of the index is made up of large-cap names not usually known for big intraday moves.

Where DFEN could prove particularly useful going forward is around earnings season when batches of big-name aerospace firms deliver results over a single day or just a few days. Additionally, the ETF could prove to be useful on a tactical basis around announcements of increased defense spending by Uncle Sam, contract wins by individual components, or if geopolitical tensions continue to rise around the globe.