The past month or so I have spent a lot of time trying to increase my position in the defense sector by buying ETFs like ITA, PPA and XAR. After playing around for a while and not loving any single ETF individually, I decided I wanted to make my own paper trading ETF to see if I could beat the main defense ETFs. Below is my breakdown.
This is just for fun but would love any suggested adds or tweaks to the weights!
The Core 5 (50%) (RTX, LMT, NOC, GD, HII)
The anchor of the portfolio here are five companies I have labeled as “Core” defense sector. Which include Raytheon, Lockheed Martin, Northrop Grumman, General Dynamics and Huntington Ingalls. The Core group accounts for 50% of the portfolio's weight with each company weighted equally (I might reduce HII a bit to scale with MCAP but for now I like the idea of these all being held equal).
For a long time I included Boeing in this group but I really just don't want it in my portfolio, even if it may rebound, so I finally gave in and just removed it completely. 2/3s of Boeing's revenues also come from commercial sales so it feels a bit less defense-specific as well despite its storied history.
Intelligence & Support Services (20%) (LHX, LDOS, BAH, PSN, KTOS)
I then identified five companies I have loosely defined as “Intel Services” which collectively make up 20% of the portfolio at any given time and are then weighted within that group based on MCAP. This one isn't necessarily a group of peers competing head to head but rather companies focusing on a variety of services that support the Core group's businesses or the military's logistics and signals systems.
Parts & Components (20%) (AVGO, GE, ADI, TDG, HEI, BWXT)
Similarly, the next 20% is made up of mid-stream companies providing key parts and components which are similarly weighted based on MCAP. Broadcomm might be a bit of an outlier here because of how large its consumer side is so I muted its weight but the exposure to the semiconductor supply seemed attractive.
Future Tech & Growth (10%) (CRWD, PLTR, HWM, AVAV, MOG.A, OII, RKLB)
The last 10% I have spread out by MCAP weight among 7 stocks focused on cybersecurity, AI, drones, space and other future tech. This also serves as a more growth focused group. I might continue to add small positions in up and coming future tech and space companies to the group and re-balance the 10% accordingly.
| Ticker | Name | MCAP (millions) | Weight % | Tag |
|---|---|---|---|---|
| RTX | RTX Corp | $141,406 | 10.0% | Core |
| LMT | Lockheed Martin | $111,072 | 10.0% | Core |
| NOC | Northrop Grumman | $81,161 | 10.0% | Core |
| GD | General Dynamics | $66,462 | 10.0% | Core |
| HII | Huntington Ingalls | $9,906 | 10.0% | Core |
| LHX | L3Harris | $42,110 | 6.50% | Intel Services |
| LDOS | Leidos | $19,585 | 4.50% | Intel Services |
| BAH | Booz Allen | $19,612 | 4.50% | Intel Services |
| PSN | Parsons Corp | $8,146 | 3.00% | Intel Services |
| KTOS | Kratos | $3,222 | 1.50% | Intel Services |
| AVGO | Broadcomm | $611,715 | 7.00% | Parts |
| GE | GE Aerospace | $179,735 | 4.00% | Parts |
| ADI | Analog Devices | $113,348 | 3.00% | Parts |
| TDG | Transdigm Group | $73,722 | 3.00% | Parts |
| HEI | Heico | $26,222 | 2.00% | Parts |
| BWXT | BWX Tech | $8,166 | 1.00% | Parts |
| CRWD | Crowdstrike | $75,261 | 3.00% | Future Tech |
| PLTR | Palantir | $48,067 | 2.50% | Future Tech |
| HWM | Howmet Aero | $33,962 | 2.00% | Future Tech |
| AVAV | Aerovironment | $5,625 | 0.75% | Future Tech |
| MOG.A | Moog Inc | $5,420 | 0.75% | Future Tech |
| OII | Oceaneering Inc | $2,406 | 0.50% | Future Tech |
| RKLB | Rocket Lab | $2,144 | 0.50% | Future Tech |
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