Should You Invest in the Invesco Aerospace & Defense ETF (PPA)?
The Invesco Aerospace & Defense ETF (PPA) was launched on 10/26/2005, and is a passively managed exchange traded fund designed to offer broad exposure to the Industrials - Aerospace & Defense segment of the equity market.
An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.
Investor-friendly, sector ETFs provide many options to gain low risk and diversified exposure to a broad group of companies in particular sectors. Industrials - Aerospace & Defense is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 15, placing it in bottom 6%.
The fund is sponsored by Invesco. It has amassed assets over $1.40 billion, making it one of the larger ETFs attempting to match the performance of the Industrials - Aerospace & Defense segment of the equity market. PPA seeks to match the performance of the SPADE Defense Index before fees and expenses.
The SPADE Defense Index is comprised of approximately 50 U.S. companies whose shares are listed on a U.S. Exchange. These are companies that are principally engaged in the research, development, manufacture, operation and support of defense, military, homeland security and space operations.
Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.
Annual operating expenses for this ETF are 0.61%, making it one of the more expensive products in the space.
It has a 12-month trailing dividend yield of 1.07%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Industrials sector--about 93.10% of the portfolio.
Looking at individual holdings, Northrop Grumman Corp (NOC) accounts for about 7.91% of total assets, followed by Lockheed Martin Corp (LMT) and Raytheon Technologies Corp (RTX).
The top 10 holdings account for about 55.05% of total assets under management.
Performance and Risk
The ETF has lost about -2.77% so far this year and is down about -0.42% in the last one year (as of 09/20/2022). In that past 52-week period, it has traded between $66.31 and $79.60.
The ETF has a beta of 0.98 and standard deviation of 27.95% for the trailing three-year period, making it a medium risk choice in the space. With about 57 holdings, it effectively diversifies company-specific risk.
Invesco Aerospace & Defense ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, PPA is a reasonable option for those seeking exposure to the Industrials ETFs area of the market. Investors might also want to consider some other ETF options in the space.
SPDR S&P Aerospace & Defense ETF (XAR) tracks S&P Aerospace & Defense Select Industry Index and the iShares U.S. Aerospace & Defense ETF (ITA) tracks Dow Jones U.S. Select Aerospace & Defense Index. SPDR S&P Aerospace & Defense ETF has $1.23 billion in assets, iShares U.S. Aerospace & Defense ETF has $3.69 billion. XAR has an expense ratio of 0.35% and ITA charges 0.39%.
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