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Shares of defense companies surged on Monday amid the fighting in Israel and Gaza. Major U.S.-listed companies rose on Oct 9 with the Invesco Aerospace & Defense ETF (PPA - Free Report) gaining more than 4% and trading with six times higher volume than the regular trading volume. iShares U.S. Aerospace & Defense ETF (ITA - Free Report) too jumped about 4.5% on Oct 9 and advanced more than 1% in after hours.
The Palestinian Islamist group Hamas' surprise attack on Israel last week has led to a shocking toll, with over a thousand casualties. Israel also initiated a series of intense airstrikes on Gaza and officially declared a state of war against Hamas on Sunday in response to an unexpected assault by the militant group, which commenced on Saturday (read: Oil Jumps on Middle East Conflict, Leveraged ETFs to Profit).
More than 700 Israelis and 400 Palestinians have lost their lives as the conflict escalates. The situation has been further worsened by Israel's decision to disconnect power in the region, making the provision of medical care more challenging. The assault included rockets, infiltrations, and the capture of soldiers, exacerbating tensions(read: 5 ETFs to Gain on Israel Attack).
Due to this war-like situation, shares of arms makers — including Northrop Gruman Corp, L3Harris Technologies Inc., Huntington Ingalls Industries Inc., Lockheed Martin Corp. and General Dynamics Corp. — led gains in the S&P 500 Index on Monday. The stocks each rose at least 8% in the session, the maximum in more than three years.
Cheaper Valuation
Along with the renewed geopolitical crisis in the Middle East, cheaper valuation too should boost defense ETFs. The sector has cheaper valuation with a forward P/E of 14.95X against the S&P 500’s P/E of 16.82X. The sector’s price-to-book and price-to-sales ratios are 2.17X and 1.16X, respectively. Both data stand cheaper against the S&P 500’s data of 4.38X and 2.38X, respectively.
ETFs in Focus
Against this backdrop, below we highlight a few defense ETFs that can gain as long as the crisis in the Middle East remains alive.
iShares U.S. Aerospace & Defense ETF (ITA - Free Report) – Up 4.5% on Oct 9
The underlying Dow Jones U.S. Select Aerospace & Defense Index measures the performance of the aerospace and defense sector of the U.S. equity market. The fund’s top three holdings include Boeing (19.47%), RTX Corp (18.22%) and Lockheed Martin (6.27%).
Invesco Aerospace & Defense ETF (PPA - Free Report) – Up 4.1% on Oct 9
The underlying SPADE Defense Index is comprised of approximately 50 U.S. companies whose shares are listed on a U.S. Exchange. These are companies that are principally engaged in the research, development, manufacture, operation and support of defense, military, homeland security and space operations. The fund’s top three holdings include Boeing (7.10%), Lockheed Martin (6.36%) and Northrop (6.12%).
SPDR S&P Aerospace & Defense ETF (XAR - Free Report) – Up 4.2% on Oct 9
The underlying S&P Aerospace & Defense Select Industry Index represents the aerospace & defense sub-industry portion of the S&P Total Stock Market Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Global Select Market. The Aerospace & Defense Index is a modified equal weight index. The fund’s top three holdings include CurtissWright (CW) (4.97%), Textron (4.93%) and Woodward (4.77%).
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN - Free Report) – Up 13.4% on Oct 9
The Direxion Daily Aerospace & Defense Bull 3X Shares seeks daily investment results, before fees and expenses, of 300% of the performance of the Dow Jones U.S.Select Aerospace & Defense Index. The fund charges 97 bps in fees.
Global X Defense Tech ETF (SHLD - Free Report) – Up 6.2% On Oct 9
The underlying Global X Defense Tech Index seeks to provide exposure to defense technology companies that are positioned to benefit from technology, services, systems and hardware that cater to the defense and military sector. BAE Systems Plc (7.43%), General Dynamics (8.42%) and Northrop Grumman (7.87%) hold the top three spots in the fund.
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Defense ETFs Spike on Middle East Tensions
Shares of defense companies surged on Monday amid the fighting in Israel and Gaza. Major U.S.-listed companies rose on Oct 9 with the Invesco Aerospace & Defense ETF (PPA - Free Report) gaining more than 4% and trading with six times higher volume than the regular trading volume. iShares U.S. Aerospace & Defense ETF (ITA - Free Report) too jumped about 4.5% on Oct 9 and advanced more than 1% in after hours.
The Palestinian Islamist group Hamas' surprise attack on Israel last week has led to a shocking toll, with over a thousand casualties. Israel also initiated a series of intense airstrikes on Gaza and officially declared a state of war against Hamas on Sunday in response to an unexpected assault by the militant group, which commenced on Saturday (read: Oil Jumps on Middle East Conflict, Leveraged ETFs to Profit).
More than 700 Israelis and 400 Palestinians have lost their lives as the conflict escalates. The situation has been further worsened by Israel's decision to disconnect power in the region, making the provision of medical care more challenging. The assault included rockets, infiltrations, and the capture of soldiers, exacerbating tensions(read: 5 ETFs to Gain on Israel Attack).
Due to this war-like situation, shares of arms makers — including Northrop Gruman Corp, L3Harris Technologies Inc., Huntington Ingalls Industries Inc., Lockheed Martin Corp. and General Dynamics Corp. — led gains in the S&P 500 Index on Monday. The stocks each rose at least 8% in the session, the maximum in more than three years.
Cheaper Valuation
Along with the renewed geopolitical crisis in the Middle East, cheaper valuation too should boost defense ETFs. The sector has cheaper valuation with a forward P/E of 14.95X against the S&P 500’s P/E of 16.82X. The sector’s price-to-book and price-to-sales ratios are 2.17X and 1.16X, respectively. Both data stand cheaper against the S&P 500’s data of 4.38X and 2.38X, respectively.
ETFs in Focus
Against this backdrop, below we highlight a few defense ETFs that can gain as long as the crisis in the Middle East remains alive.
iShares U.S. Aerospace & Defense ETF (ITA - Free Report) – Up 4.5% on Oct 9
The underlying Dow Jones U.S. Select Aerospace & Defense Index measures the performance of the aerospace and defense sector of the U.S. equity market. The fund’s top three holdings include Boeing (19.47%), RTX Corp (18.22%) and Lockheed Martin (6.27%).
Invesco Aerospace & Defense ETF (PPA - Free Report) – Up 4.1% on Oct 9
The underlying SPADE Defense Index is comprised of approximately 50 U.S. companies whose shares are listed on a U.S. Exchange. These are companies that are principally engaged in the research, development, manufacture, operation and support of defense, military, homeland security and space operations. The fund’s top three holdings include Boeing (7.10%), Lockheed Martin (6.36%) and Northrop (6.12%).
SPDR S&P Aerospace & Defense ETF (XAR - Free Report) – Up 4.2% on Oct 9
The underlying S&P Aerospace & Defense Select Industry Index represents the aerospace & defense sub-industry portion of the S&P Total Stock Market Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Global Select Market. The Aerospace & Defense Index is a modified equal weight index. The fund’s top three holdings include CurtissWright (CW) (4.97%), Textron (4.93%) and Woodward (4.77%).
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN - Free Report) – Up 13.4% on Oct 9
The Direxion Daily Aerospace & Defense Bull 3X Shares seeks daily investment results, before fees and expenses, of 300% of the performance of the Dow Jones U.S.Select Aerospace & Defense Index. The fund charges 97 bps in fees.
Global X Defense Tech ETF (SHLD - Free Report) – Up 6.2% On Oct 9
The underlying Global X Defense Tech Index seeks to provide exposure to defense technology companies that are positioned to benefit from technology, services, systems and hardware that cater to the defense and military sector. BAE Systems Plc (7.43%), General Dynamics (8.42%) and Northrop Grumman (7.87%) hold the top three spots in the fund.