If you’re looking for a “Biden play", look no further than aerospace/defense — and my Top Pick for the year, SPDR S&P Aerospace & Defense ETF (XAR)," notes John Persinos, editorial director at Investing Daily.
International conflict is likely to increase this year, as Russia, China, North Korea and other antagonists of America test the resolve of the fledgling Biden administration. When the world becomes more dangerous, defense contractors get more money.
President Biden has put President Vladimir Putin on notice, warning the Russian strongman that he will pay the consequences for human rights abuses, cyberattacks, and meddling in American elections.
The intensifying Russo-American rivalry will be a driver of defense spending, this year and beyond. Welcome to Cold War II.
According to the latest data from the Stockholm International Peace Research Institute, the U.S. remains the world’s largest arms exporter. From 2016 to 2020, the U.S. accounted for 37% of global arms sales, versus 32% from 2011 to 2015. See the following chart:
During the five-year period ending in 2020, the U.S. supplied arms to 96 countries, 47% of which were in the Middle East. Saudi Arabia was the biggest customer. Meanwhile, the White House has proposed increases in the U.S defense budget.
The best way to profit from these trends is through the benchmark SPDR S&P Aerospace & Defense ETF). With net assets of $1.3 billion, the XAR exchange-traded fund has been consistently beating the SPDR S&P 500 ETF Trust (SPY).
XAR has generated a gain of 17% year to date and 55.4% over the past 12 months, compared to 13% and 43.5%, respectively, for the SPY (as of market close June11).
XAR’s holdings are major aerospace/defense players with entrenched ties to Pentagon brass. These military contractors also enjoy abundant overseas sales to American allies.
We face an entire decade of booming military expenditures in the U.S. and around the world. These vast sums will end up in the coffers of XAR’s holdings…and in the portfolios of XAR’s shareholders.