A constant barrage of geopolitical tensions coupled with the forceful rhetoric of President Trump has sent defense stocks and exchange-traded funds (ETFs), such as the iShares U.S. Aerospace and Defense ETF (ITA), soaring.
While the main reasons why defense ETFs are doing well right now are evident if you take a glance at recent world events — tensions with North Korea, the continued threat of ISIS and strained U.S. relations with Russia — they are not the only causes of this surge. A Sept. 20 article from Zacks entitled “Beyond North Korea, 4 More Reasons to Buy Defense ETFs,” laid out some additional reasons why defense ETFs are a hot item of late. Succinctly, they are:
1) Lots of mergers and acquisitions (M&A) activity in the sector (for example, Northrop Grumman’s $7.8 billion buyout of aerospace company Orbital ATK)
2) The prospect of more U.S. troops being deployed to the Middle East
3) Strong sector fundamentals
4) The passing of a $700 billion defense bill by the Senate for war spending and the production of 94 F-35 Lightning II jets.