The XAR ETF (SPDR), created in 09/2011, replicates the S & P Aerospace & Defense index of the 36 largest US stocks in the sector with the largest capitalization and liquidity.
Basically, the index starts from an equally weighted method.
ETF fees are fairly standard compared to our sample average of 0.35% while AUM are approximately $ 835M. Dividends are distributed quarterly.
Alternative ETFs : ITA (iShares, $), PPA (PowerShares, $)
Index & components
XAR includes the largest US companies in the defense and aerospace industry.
Among the top 10 stocks are companies such as Boeing, Lockheed Martin Raytheon and General Dynamics. A number of these companies have both defense and aerospace activities such as Boeing. Others like Raython or Lockeed Martin are specialized in equipment and electronic defense systems (missiles, drones etc ...). These companies represent the US military-industrial complex, which benefits from the world's largest military budget of around $ 600bn. These are high-tech companies, which incur very high research and development costs, with research axes based on the latest developments in order to invent the equipment of the future (AI, Robotics, drones, cyberwar ...). These companies aim to sell their equipment around the world, in particular to their traditional allies (NATO, Japan, Israel ...), and are competing with other major industrial militaristic powers of Russia, France, China and England. Germany and Japan also tend to increase their positions in this market.
Defense is a market that is not cyclical but dependent on public finances and of the international context. Aerospace, which includes the construction of civil aircraft, is not very cyclical, with order books that are very long and a duopoly with Boeing and Airbus, while equipment manufacturers are more numerous but generally specialized. This market depends on airline spending, which is based on the increase in traffic but also on the oil price (kerosene), which is an important component of their costs, but if the barrel becomes too low this decreases interest to invest in new aircrafts that consume less.
The price of the Euro / dollar is very important because it determines mainly the competitiveness between European and American manufacturers.
Latest developments
XAR is progressing by almost 18% in 2017 after an increase of nearly 20% in 2016, with corrections that remain limited. The defense sector is doing well, with a particularly buoyant context on the world stage. First, D.Trump put pressure on NATO partners to raise their military spending to 2% of GDP. This should benefit European companies in the first place, but some markets in particular in Eastern Europe (eg Poland) have been awarded to US companies. Moreover, the Korean crisis could greatly benefit the US defense sector, while Japan has decided to significantly increase its defense budget to $ 48bn and South Korea should follow. India is also increasing its military budget, while tensions with China prompt it to turn to the US. Finally, in the Middle East, Saudi Arabia is continuing its arms race (mainly US) in order to counter the rising power of Iran, which is increasingly active, notably in Syria and Iraq.
Civil aerospace continues to grow amid continuing traffic growth, and as airlines regain investment capabilities. The recent decline in the dollar is good news for US manufacturers.
