Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some aviation and defense stocks to your portfolio, but don’t have the time or expertise to hand-pick a few, the iShares Dow Jones US Aerospace & Def.ETF (NYSEMKT:ITA) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF’s expense ratio — its annual fee — is a relatively low 0.46%. The fund is fairly small, too, so if you’re thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed reasonably, but it’s also very young, with just a few years on the books. It underperformed the S&P 500 in 2008 and 2010, though it beat it substantially in 2007 and 2009. As with most investments, of course, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why aviation and defense?
It’s unlikely that our global population will stop traveling by air, or that military powers around the globe will decide they have enough weaponry and equipment. This industry may not grow in a straight line, but it’s likely to grow over time.
More than a handful of aviation and defense companies had strong performances over the past year. United Technologies Corporation (NYSE:UTX) surged 48%, for example, and recently yielded 2%. Featuring brands such as Otis, Sikorsky, and Pratt & Whitney, it gobbled up Goodrich last year. United Technologies Corporation (NYSE:UTX) just reported quarterly revenue up 16% over year-ago levels, with earnings per share popping more than 27% and trouncing estimates. The company may soon be building President Obama’s new helicopter, too.
Precision Castparts Corp. (NYSE:PCP) jumped 46%, and recently reported quarterly earnings up 23% over last year. Precision Castparts Corp. (NYSE:PCP) has been rearranging itself, selling Primus Composites to Triumph Group, and buying aerospace fluid-fittings company Permaswage for $600 million. The company’s supplier relationship with Boeing bodes well, too. Some analysts have been bullish on the company’s expected growth, but others see the stock as a bit ahead of itself at the moment.