Monday, September 10, 2018

iShares U.S. Aerospace & Defense has surged over the past year, but trade-war fears are tempering optimism

The Wall Street Journal
By Gerrard Cowan
September 9, 2018 10:02 p.m. ET

The largest aerospace-and-defense exchange-traded fund has surged over the past year, though analysts say global trade disputes are tempering optimism for the sector.

The $5.73 billion iShares U.S. Aerospace & Defense ETF (ITA) follows a market-cap-weighted index of U.S. aerospace and defense companies, including giants Boeing Co. , Lockheed Martin Corp. and United Technologies Corp. It has returned more than 10% year-to-date through August, and almost 23% over the past 12 months.

The earnings of many companies in the index have been strong recently, driven by robust global demand in both the civil aerospace and military domains, says Dhruv Nagrath, U.S. iShares investment strategist.

In the U.S., the Trump administration has made military spending a priority, which investors have viewed as a tailwind for the sector, says Mr. Nagrath.

However, Mr. Nagrath points to fears about what growing trade conflicts might mean for the civil aerospace industry, with companies like Boeing increasingly reliant on the international market. Boeing, for example, has estimated that Asia-Pacific will soak up 40% of airplane deliveries from 2018 to 2037.

Global spending on both aerospace and defense is continuing to rise, which could underpin ITA in the coming years, says Neena Mishra, director of ETF research at Zacks Investment Research. However, “there are concerns that a widening fiscal deficit could impact military spending [in the U.S.] in the early 2020s,” she says, while trade disputes or oil-price increases could affect the commercial side.

Original article can be found here ➤

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