Are There Opportunities In The Defense & Aerospace Industry?

Over the past few years, the bearish argument against investing in defense and aerospace has been that looming budget cuts would result in lower spending on national defense in the United States and elsewhere. But those fears have not materialized; in fact, many exchange-traded funds (ETFs) focused on defense and aerospace have outperformed the market. For example, the iShares U.S. Aerospace & Defense ETF ( ITA ), the Powershares Aerospace & Defense ETF ( PPA ) and the SPDR S&P Aerospace & Defense ETF ( XAR ) have each returned 7% to 9% over the past year, while the S&P 500 Index is up 6% in the same timeframe. Defense budgets have largely remained intact or have endured only modest cuts in many cases. The United States defense budget stood at $585 billion in 2015. On the commercial side, business conditions remain very strong. As a result, these three ETFs could continue to outperform the market.