Well-Rounded Aerospace and Defense Fund Delivers Targeted Exposure

Jim Woods

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This week’s featured exchange-traded fund (ETF), the SPDR S&P Aerospace & Defense ETF (XAR), tracks an index of U.S. aerospace and defense companies.

The fund currently has $1.01 billion assets under management and invests at least 80% in its holdings. Unlike some of its peer aerospace and defense funds, which tend to focus more on large-cap companies and often the very largest names, XAR aims to achieve a 40/40/20 weighting composition for large-, mid- and small-caps, respectively.

This mix of holdings allows XAR to deliver targeted coverage within the aerospace and defense sector to its investors. Although XAR does not offer options, it has attracted the attention of block traders with its strong underlying liquidity and a reasonable fee of 0.35%.
The fund has quarterly distributions and a dividend yield of 1.09%. This is relatively low when compared to competing funds like ITA (which is also more than four times the size of XAR), but XAR seeks a performance advantage with its focus on relatively smaller companies.

The defense sector has had a strong rally for the year, fueled by President Trump’s avowed support for the military and by threatening missile tests and words against the United States from North Korea’s dictator. XAR has been well-positioned to take advantage with its concentrated approach.

Year-to-date, XAR has returned 26.79%, beating out the S&P 500’s return of 14.16%. Analysts at State Street Global Advisors (SPDR) have put together a projected 3-5-year earnings per share growth estimate of 13.10% for XAR.

XAR currently has 35 holdings. The top five are Orbital ATK Inc., 4.37%; Triumph Group Inc., 4.29%; KLX Inc., 4.11%; Huntington Ingalls Industries Inc., 3.96%; and Hexcel Corporation, 3.94%.

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For those seeking a fund to increase their exposure to the aerospace and defense segment, I encourage you to look at SPDR S&P Aerospace & Defense ETF (XAR).

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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