Equity: U.S. Aerospace & Defense

ITA Top Performer Intra-day
Price $186.02
Today’s Change +1.75%(0.95)
11:43am 12/13/2017
XAR Bottom Performer Intra-day
Price $82.33
Today’s Change +0.75%(0.92)
11:44am 12/13/2017
  • Overview
  • Efficiency
  • Tradability
  • Fit

ETF.com Insight

There are three ETFs that attempt to provide exposure to the US Aerospace and Defense industry: ITA, XAR and PPA. All three use different strategies to tackle the industry's highNone capture the market perfectly concentration problem (the industry is dominated by two firms, United Technologies and Boeing). As a result, none capture the market perfectly.
ITA is the most plain-vanilla of the three; it merely caps the weights of the biggest securities to meet diversification requirements. XAR is also relatively vanilla—it holds most of the same securities as our benchmark—but it weights its holdings equally, tilting it even smaller than ITA. The last fund, PPA, uses a different industry classification system to pick stocks, and thus includes a few companies outside our benchmark's scope.
Traders of all sizes will see the best execution with ITA or PPA. XAR is far from untradeable, but is not as liquid as its peers.
XAR offers its exposure at the lowest expense ratio—just 35 bps. In comparison, ITA charges 44 bps and PPA charges 66. Despite not having the lowest expense ratio in the segment, ITA earns our Analyst Pick for its solid tracking performance (after factoring in expense ratio), great retail liquidity and having the most market-like exposure. (Insight updated 12/13/17)

All Funds (3)

ITA $4.9 B 4895808750 Most market-like exposure

A 76
E
91
91
T
92
92
F
76
76

PPA $853.94 M 853936000 Weak pure-play exposure; poor tracking

A 67
E
89
89
T
97
97
F
67
67

XAR $1.03 B 1028705791.95 Equal-weighted; low volume

A 57
E
94
94
T
93
93
F
57
57

ETF.com Grade as 12/07/17

Equity: U.S. Aerospace & Defense

1 Year Total Return NAV
Performance  [as of 12/11/17] 1 Month 3 Month YTD 1 Year 3 Years 5 Years 10 Years
Benchmark: Thomson Reuters US Aerospace & Defense2.51%11.29%37.50%35.82%19.54%24.27%--
A 76.039067ITA4895808750ITAiShares U.S. Aerospace & Defense ETF2.45%8.44%31.79%28.07%19.36%23.63%11.78%
A 67.093814PPA853936000PPAPowerShares Aerospace & Defense Portfolio2.21%8.24%28.31%25.26%17.62%22.28%10.22%
A 57.374377XAR1028705791.95XARSPDR S&P Aerospace & Defense ETF1.49%8.13%29.26%25.36%17.33%22.74%--
All returns over 1 year are annualized. All returns are total returns unless otherwise stated.

ETF.com Efficiency Insight

The three aerospace & defense funds are all reasonably efficient. The top-scorer, XAR, is also the cheapest at 35 bps, but loose tracking means it only barely edges out second-cheapestThe three aerospace & defense funds are all reasonably efficient. fund ITA, which charges 11 bps more.
In comparison, PPA's 66 bp expense ratio seems excessive. Its high fee is accompanied by poor tracking. Note that PPA's apparent outperformance is an artifact of its tracking a price-return index. While we've accounted for this in calculating its Efficiency score, the fund's true holding cost is difficult to measure.
All three funds in the segment should be stable for the foreseeable future. ITA and PPA both have solid asset bases and, while XAR has only about $80M, it is unlikely to get shut down by State Street.
XAR paid out capital gains in 2013, a taxable event for investors and a common problem for equal-weighted funds, though the distribution was tiny. The other two funds have been tax efficient. (Insight updated 12/13/17)

All Funds (3)

94
94.046791
91
91.15052
89
89.359412

ETF.com Grade as 12/07/17

Equity: U.S. Aerospace & Defense

Tracking Difference (12 Month)

Ticker Expense Ratio Median Max. Upside Max. Downside Max LT/ST Cap Gains Rate Rule Legal Structure Fund Closure Risk Efficiency
ITA iShares U.S. Aerospace & Defense ETF 0.44% -0.54% -0.50% -0.66% 20.00% / 39.60% Low 91.15052
PPA PowerShares Aerospace & Defense Portfolio 0.64% 1.24% 1.49% 1.05% 20.00% / 39.60% Low 89.359412
XAR SPDR S&P Aerospace & Defense ETF 0.35% -0.47% -0.41% -0.65% 20.00% / 39.60% Low 94.046791

ETF.com Tradability Insight

ITA and PPA trade well at the retail level. ITA in particular trades over $3M on a typical day, at tight 6 bp spreads. PPA sees relatively smaller volume and looser spreads, but is stillITA and PPA trade well. very accessible to retail investors and has stellar block liquidity. XAR may be expensive to access due to low volume and spreads in excess of 15 bps, but that shouldn't be a deal-breaker by itself.
Institutional traders should have no problem executing trades for any of the funds, as all three have perfect block liquidity score. (Insight updated 12/13/17)

All Funds (3)

97
96.920037
93
93.098786
92
92.260672

ETF.com Grade as 12/07/17

Equity: U.S. Aerospace & Defense

Ticker Median Daily Volume ($) Average Spread Creation Unit/Day Market Hours Overlap Underlying Volume/Unit % Creation Cost Per Unit (%) Impediment to Creations Score - Tradability
ITA iShares U.S. Aerospace & Defense ETF $39.23 M 0.06% 4.30 100.00% 0.51% 0.00% None 92.260672
PPA PowerShares Aerospace & Defense Portfolio $3.95 M 0.06% 1.49 99.00% 0.10% 0.02% None 96.920037
XAR SPDR S&P Aerospace & Defense ETF $9.82 M 0.06% 2.40 100.00% 0.43% 0.01% None 93.098786
Spread History
Premium/Discount History

ETF.com/ Block Liquidity

ITA
5
4
3
2
1
PPA
5
4
3
2
1
XAR
5
4
3
2
1

This measurement shows how easy it is to trade 25,000 shares of each ETF.

ETF.com Fit Insight

The aerospace & defense industry’s high concentration limits the degree to which ITA, PPA and XAR can capture the market. ITA and PPA both aim to deliver broad market-likeAll 3 funds underweight the largest companies in the industry exposure by tracking market-cap-weighted indexes focused on the industry. Both funds cap individual security concentration to comply with diversification rules, but despite this handicap, ITA and PPA do a decent job of fitting our segment benchmark. XAR doesn’t aspire to be representative; instead, the fund equally weights its holdings to provide diversified exposure.
Different methods of defining the companies in the industry result in substantially different holdings. Of the 3 funds, PPA provides the least pure exposure. ITA and XAR invest the majority (about 90%) of their portfolios in pure-play aerospace & defense companies, while PPA only invests 70%. PPA’s broader scope leads to inclusion of IT services & consulting companies and communications equipment industries.
All 3 funds underweight the largest companies in the industry and overweight the small ones, resulting in a small-cap tilt for each fund. This diversification reduces each fund’s single-stock risk. Of the 3 funds, ITA has the most concentrated portfolio, with about 9% positions in both United Technologies and Boeing. XAR tilts the smallest of the three, with a market cap of just $21B, but even ITA and PPA don't come close to our benchmark's $58B.
Overall, each fund does the best it can to address the industry’s highly concentrated nature. ITA captures the theme the most closely, while PPA uses a different classification system that results in a different picture of the industry and XAR offers equally weighted pure-play exposure. (Insight updated 12/13/17)

All Funds (3)

76
76.039067
67
67.093814
57
57.374377

ETF.com Grade as 12/07/17

Equity: U.S. Aerospace & Defense