Aerospace and Defense ETFs and Their Underlying Indexes – ITA, PPA and XAR

Aerospace and Defense contribute a significant portion to the U.S. GDP, and stocks in this realm are always well regarded by well-informed investors. With Trump being elected the current president of the United States, people anticipate more budget be allocated into these two spaces, driving up associated firm value even higher. ETFs themed on them had long been developed to be conducive for such investment. ITA, PPA, and XAR are the largest three.

ITA, The iShares Dow Jones U.S. Aerospace & Defense ETF was issued in May 2006, while PPA, The PowerShares Aerospace & Defense Portfolio is in October 2005. They have since attracted AuM of $2.82 billion and $583 million respectively. The third one, XAR, the SPDR S&P Aerospace & Defense ETF started much later in September 2011, with an AuM $577 million, quite comparable to PPA given a later entrant status. The three tracks different indexes, so it’s worth to dive into each of them to understand fundamental of these funds.

ITA tracks Dow Jones U.S. Select Aerospace & Defense Index, which is based on the GICS sector Aerospace (2713) and Defense (2717).

PPA is powered by Invesco PowerShare, based off on their SPADE Defense Index, is composed of more than 50 firms with representative business activities including naval vessels, military aircraft, missiles and munitions, battlespace awareness, C4ISR, network-centric warfare, homeland security including border security and biometric and screening systems, and space systems.

XAR benchmarks against S&P Aerospace & Defense Select Industry Index, the difference between this index and tracks Dow Jones U.S. Select Aerospace & Defense Index is that Dow Jones, as outlined above, is derived from two sectors at the second level of GICS: Aerospace (2713) and Defense (2717), while S&P Aerospace & Defense Select Industry Index is derived from a narrow sub-industries(fourth level) or groups of sub-industries(third level), specifically, Aerospace & Defense Aerospace & Defense (20101010).

Now compare the performance of them. All the three beats the market proxied by S&P500 nicely over the last decade.

 

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