Please ensure Javascript is enabled for purposes of website accessibility

Make Money in Aerospace and Defense the Easy Way

By Selena Maranjian – Updated Apr 6, 2017 at 10:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's no need to guess which aerospace or defense company will perform best.

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the aerospace and defense industry to thrive, given the strife and upheaval around the world, the iShares Dow Jones US Aerospace & Defense ETF (NYSE: 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 several dozen of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.

This ETF is only a few years old, so it doesn't have much of a track record yet. So far, it has generally posted returns slightly better than the overall market. As with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver. With a low turnover rate of 14%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do. (It tracks the benchmark Dow Jones U.S. Select Aerospace & Defense Index.) 

What's in it?

Several of this ETF's components made strong contributions to its performance over the past year. Textron (NYSE: TXT), for example, is up about 35%, and investors expect further growth; sales have started picking up in its helicopter, military hardware, and industrial divisions, and a turnaround could soon take effect in its Cessna business-jet line. Ballistic armor specialist Ceradyne (Nasdaq: CRDN) advanced 68%, with its bulls excited about its recent big order from the U.S. Army and its plans to buy specialty glass maker VIOX.

Other companies didn't add much to the ETF's returns last year, but they could have an effect in the years to come. L-3 Communications (NYSE: LLL) lost about 12% over the past year, but it has been increasing its return on capital, and it makes versatile products that can be used in a number of different applications.

The ETF holds 32 different securities, with its top two, United Technologies (NYSE: UTX) and Boeing (NYSE: BA), representing nearly 17% of its assets. They're two of the biggest players in the business, and while many have grown frustrated with how slowly Boeing has brought its new Dreamliner to market, some excitement has built up over United Technologies' possible expansion into making planes of its own. The news isn't all bad for Boeing, either -- it just won a huge new U.S. Air Force contract.

The big picture
Demand for defense and aerospace offerings isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.

ETFs can help you find the way to better investing results. To find some great ETF investing ideas, take a look at The Motley Fool's special free report, "3 ETFs Set to Soar During the Recovery."

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. The Fool has written puts on L-3 Communications and owns shares of L-3 Communications and Textron. Try any of our investing newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is Fools writing for Fools.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
RTX
$82.03 (-1.70%) $-1.42
The Boeing Company Stock Quote
The Boeing Company
BA
$131.26 (-5.37%) $-7.45
Textron Inc. Stock Quote
Textron Inc.
TXT
$59.43 (-2.69%) $-1.64
Ceradyne, Inc. Stock Quote
Ceradyne, Inc.
CRDN
L3 Technologies, Inc. Stock Quote
L3 Technologies, Inc.
LLL
iShares Trust - iShares U.S. Aerospace & Defense ETF Stock Quote
iShares Trust - iShares U.S. Aerospace & Defense ETF
ITA
$94.53 (-2.59%) $-2.51

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.