Learn how investing in aerospace companies impacts your investment portfolio and helps you grow your hard-earned money for retirement.
Investing in Aerospace Companies | Inside Your IRA
Step 1: Study the Aerospace Industry
The aerospace and defense industry has become one of the biggest and most powerful sectors in the US. The several sub-sectors of the industry include commercial airlines, military aircraft, spacecraft, missiles, and general aviation. With its wide coverage, this industry offers some of the biggest investment opportunities among aggressive investors.
Step 2: Know the Opportunities and Complexities of the Industry
The growing demand for aerospace sectors proves that the industry has become even more powerful. For example, due to the growth of world population and of developing countries’ income, the demand for commercial air transport also increased. Another factor that has contributed to growing opportunities in the aerospace industry growth is the development and introduction of new aero technologies like energy-efficient aircraft.
While the aerospace industry is said to be one of the fastest-growing industries, it is also associated with some disadvantages just like any other type of investment. The defense sector depends mainly on government resources and requires extremely large budgets. Another challenge in investing in the aerospace industry is the misuse of these aircrafts, such as the tragedy of 9/11. This has caused a decline in US-allied defense budgets.
Investing In Aerospace Corporations
The fastest and best way to invest in the aerospace industry is through Exchange Traded Funds or ETFs. These ETFs are generally pre-packaged forms of aerospace defense sector stocks, which are readily available for interested investors. Since competition among defense aerospace companies in winning government contracts is fierce, using ETFs makes it even easier to enter this sector.
ETFs make use of a single transaction so it is more convenient for investors to gain exposure in the aerospace industry. Aside from offering convenience, investing through ETFs also allows you to save some bucks on brokerage fees, commissions, and even on taxes.
Step 3: Research the Best ETF Companies
If you are putting your hard-earned money in an investment, you might as well place it in reputable companies for better returns. According to Nasdaq, the following are some of the top ETF companies in the game now.
ITA – iShares Dow Jones US Aerospace & Defense ETF
This ETF targets access to defense stocks and domestic aerospace. It offers investors exposure to US aerospace companies that focus on manufacturing and distribution of commercial, defense equipment, and military aircraft. Companies in it include Boeing, United Technologies Corporation, and Goodrich Corporation.
PPA – PowerShares Aerospace & Defense ETF
Similar to ITA, the PPA ETF is also one of the top-performing ETFs when it comes to the aerospace industry. It also gives investors exposure to military aircraft manufacturing, homeland securities, space, and defense industry. Some of the trade securities of this ETF include United Technologies Corporation, Honeywell International, Raytheon Corporation, and Lockheed Martin. That said, one of the drawbacks to this ETF are its high management costs and poor tracking of investments.
XAR – SPDR S&P Aerospace & Defense ETF
Unlike ITA and PPA, XAR has a different focus for its portfolio in the aerospace industry by diversifying into everything from large to small companies. In fact, the funding breakdown for XAR is 97% for aerospace and defense manufacturing and 3% for industrial machinery. Some of the trading companies of this ETF includes Goodrich Corporation, Triumph Group Incorporated, Spirit AeroSystems, and Honeywell International.
While aerospace investing provides a very enticing investment opportunity, we should still do our research and take extra care when investing in this industry. Remember that every investment, no matter how big or small has its upsides and downsides.
Do you think investing in aerospace companies makes a good addition to an investment portfolio? Share your thoughts with us in the comments section below.