This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Aerospace, Defense Funds Are Quietly Beating the Market in 2014

NEW YORK ( TheStreet ) -- Aerospace and defense funds have been soaring lately although you'd think no one was noticing.

During the past year, iShares Dow Jones U.S. Aerospace & Defense ETF (ITA) returned 37.4%, compared with 17.6% for the S&P 500 Index. Another exchange-traded fund that gained more than 30% was PowerShares Aerospace & Defense (ETF) (PPA). The big gains came as many companies in the sector reported surprisingly strong earnings.

Defense stocks had been under a cloud because of the spending reductions caused by the sequester that went into effect in March 2013. But the Washington cutbacks did less damage than many Wall Street analysts expected.

Worried about declining sales, defense contractors prepared for the sequester by laying off employees and cutting costs sharply. In addition, foreign sales remained strong. As a result, profit margins proved resilient.

Can the sector continue climbing? Yes. Even if defense spending shrinks in coming years, some businesses seem likely to grow. Sales abroad should climb as countries such as Japan and Korea increase their defense budgets. The industry should also enjoy growing demand from civilian airlines. As the global economy expands, more people are flying.

According to the International Air Transport Association, global airline traffic increased 5.2% in 2013. That growth should continue at a 5% rate in coming years. The gains should be even stronger in the emerging markets of Asia and Latin America. The positive outlook is causing many airlines to increase their orders for new planes.

"Orders are at historic highs as many airlines are expanding or replacing aging fleets," says David Mazza, head of ETF investment strategy for SPDR ETFs.

The strong demand is boosting Boeing (BA), which is a big holding in all the defense and aerospace ETFs. The company's revenue increased 8% in the first quarter, while earnings gained 14%.

Boeing's performance should remain robust for years. The company has a backlog of $440 billion worth of orders. The fuel-efficient 737 plane is proving especially popular and has recorded 2,000 orders.

Strong sales from Boeing will help a host of parts suppliers, says Tobias Welo, a portfolio manager at Fidelity Investments.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $131.78 -0.20%
FB $80.14 -0.50%
GOOG $539.78 -0.00%
TSLA $251.45 1.62%
YHOO $43.07 -0.71%

Markets

DOW 18,126.12 -36.87 -0.20%
S&P 500 2,120.79 -2.69 -0.13%
NASDAQ 5,097.9760 -8.6170 -0.17%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs