For aviation-minded investors with their heads in the clouds, there are plenty of investing options structured around the aviation and defense industries--if they're open to the format. When it comes to mutual funds, the only aviation mutual fund that is directly targeted to the aerospace and defense sector is the Fidelity Select Defense and Aerospace Fund. However, investors can alternatively gain exposure to the aerospace industry by investing in other mutual funds that, while not specifically focused on the industry, nonetheless have significant holdings in aerospace stocks.
Meanwhile, investors who are open to aviation mutual fund or defense mutual fund alternatives can also consider direct stock investment in aerospace companies or comparable exchange-traded funds (ETFs) with an aerospace focus. Here's a breakdown of some of the most popular ones.
Mutual Fund: The Fidelity Select Defense and Aerospace Fund (FSDAX)
The Fidelity Select Defense and Aerospace Fund is a mid-cap value fund that aims for maximum capital appreciation. Since its inception in 1984, the fund has done very well, with an annual average return of 12.96% over the past 10 years. Typically, at least 90% of the fund's investments are in common stocks of companies with principal business in research, manufacturing, or marketing of products and services in the aerospace and defense industries. The three-star Morningstar fund has an expense ratio for FSDAX is 0.75%.
Most of the fund's investments are in technology or industrial stocks, though the turnover is high at 52%. The top 10 holdings make up 73% of the portfolio, and include big players such as Lockheed Martin, Northrop Grumman Corporation, TransDigm Group Inc., Boeing Company, and Heico Corporation. According to Morningstar, the estimated risk level of the fund is high.
- Aviation-minded investors who want to invest in aerospace or defense industry mutual funds can check out Fidelity's Select Defense and Aerospace Fund (FSDAX).
- Meanwhile, popular aviation ETFs include FITE, PPA, and DFEN.
- Other more risk-tolerant investors can also invest in single stocks from companies including Boeing, Northrop Grumman, and Lockheed Martin.
Another alternative to mutual fund investments for investors interested in accessing the aerospace sector is ETFs that track the sector. Some of the available aerospace-focused ETFs include the following.
SPDR S&P Kensho Future Security ETF (FITE)
Recently incepted in 2017, this fund is a blend of multi-cap U.S. stocks in the aerospace and defense industries. With total assets of $31.2 million, this fund comes in with an expense ratio of 0.45% and so far a one-year return of 8.61% (after taxes on distributions and sale of fund shares). Unlike other funds that focus exclusively on aerospace companies, about 68% of FITE's portfolio includes companies from other sectors, such as electronics and software companies like OSI Systems Inc and Mandiant Inc.
Invesco Aerospace and Defense Portfolio ETF (PPA)
Morningstar gives this aerospace and defense ETF a five-star rating; at $1.4 billion in total assets with an annual average return of 10.21% over the past five years, PPA comes in as one of the largest. Plus, it has a 0.61% expense ratio and tracks the benchmark SPADE Defense Index.
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN)
This ETF tracks the Dow Jones U.S. Select Aerospace & Defense Index (300%), which aims to provide 300% exposure to large-cap stocks that include defense contractors, manufacturers, consultants, and service firms in the aerospace sector. This aviation and defense ETF has an expense ratio of 0.98%, with a P/E ratio of 25.7,7 and an annual dividend yield of 2.03%.
Aviation and Defense Stocks
As an alternative to investing in the Fidelity mutual fund or other ETFs, investors can consider investing directly in some of the same stocks that make up the portfolio of FSDAX.
The Boeing Company is considered a major aerospace firm in the United States. In addition to producing both commercial and military aircraft, Boeing also manufactures rockets, rocket launch systems, and satellites through its Boeing Defense, Space & Security division. The company manufactures parts and component systems that are utilized in space shuttles and space stations.
Northrop Grumman (NOC)
With annual revenue over $35 billion, Northrop Grumman is an aerospace and defense technology company that's also one of the world's largest. It provides weapons and military technology for clients including NASA, the Department of Defense, the U.S. Air Force and Space Force, and more. Of note, Northrop Grumman helped build NASA’s James Webb Space Telescope.
Lockheed Martin (LMT)
Lockheed Martin Corporation is a global security and aerospace company that is involved in researching, design, development, manufacturing, and more of technology used in the aerospace and defense industries. Building everything from helicopters to renewable energy systems and cybersecurity systems, Lockheed Martin had over $67 billion in total sales in 2021.