First Trust Advisors, which manages 197 exchange-traded funds, is jumping into defense and aerospace as threats of war ramp up globally.
Top holdings in the First Trust Indxx Aerospace & Defense ETF (MISL) include Lockheed Martin Corp., General Dynamics Corp. and Northrop Grumman Corp. Shares from those three companies will make up about 26% of the fund.
The fund plans to track the Indxx US Aerospace & Defense Index, which has gained 13% so far this quarter as threats to global security rise. Russia’s suggestion it may launch nuclear weapons against Ukraine, China’s threats to regain control of Taiwan and increasing cybersecurity attacks have helped the index outperform broader stock gauges like the S&P 500.
Aerospace spending should jump next year on commercial aircraft spending, as the global economy fully recovers from COVID-19 shutdowns, PwC said earlier this year.
Wheaton, Illinois-based First Trust, with $128 billion in ETF assets under management, last week launched a fund following a dividend plus options strategy.
MISL aims to invest at least 80% of its net assets in stocks listed in the Indxx index. For a U.S.-based company to be included in the index, it must derive at least 50% of its revenue from business activities that relate to aerospace and defense.
The index further focuses on subsectors such as directed energy, hypersonic technology space technologies, unmanned aerial vehicle/advanced air mobility and cybersecurity solutions, in addition to traditional aircraft manufacturing materials.
"Indxx uses in-depth company research from annual reports, company filings and other publicly available company data to identify revenue derived from the target industry,” Rahul Sen Sharma, Indxx’s managing partner, wrote in an email to ETF.com.
MISL lists on the NYSE Arca and comes with an expense ratio of 0.60%, competing with other funds in the aerospace sector such as the iShares U.S. Aerospace & Defense ETF (ITA), the SPDR S&P Aerospace & Defense ETF (XAR) and the Invesco Aerospace & Defense ETF (PPA), which charge fees of 0.39%, 0.35% and 0.61%, respectively.
Contact Zoya Mirza at [email protected]