Smaller defense companies focusing on surveillance and military supplies, such as Kratos Defense and Security Solutions (KTOS), Leonardo DRS (DRS), and Transdigm Group (TDG), are outperforming traditional defense giants in the iShares U.S. Aerospace & Defense ETF (IFA). Kratos, a missile defense system maker, has surged over 80% this year, contrasting with a more than 8% decline in Lockheed Martin's shares. Archer Aviation (ACHR), a civilian electric air taxi manufacturer, is the top performer in the ETF, emphasizing the shift towards innovative aerospace technologies.
The success of these smaller firms highlights a trend of investors seeking innovation over traditional defense strategies. However, it's noted that the concentrated approach of iShares U.S. Aerospace & Defense ETF, focused on traditional defense contractors, lags behind broader market indices.
The SPDR S&P Aerospace & Defense ETF (XAR), with an equal-weighted strategy including smaller firms, has outperformed in 2023, indicating the importance of considering ETF composition when investing in the aerospace and defense sector.
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