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Defense stocks provided haven in market's swoon

The war in Iraq grinds on and now President Bush is looking for a big increase in defense spending. There’s an obvious beneficiary in the land of exchange-traded funds, as Tom Lydon points out over on ETF Trends.

The PowerShares Aerospace & Defense Fund (Symbol: PPA) is hitting a new high today, putting it up 27% for the year. Comprised of 55 defense industry stocks, ranging from stalwarts like Boeing (BA) and Lockheed Martin (LMT) to smaller fish like Trimble Navigation (TRMB) and DRS Technologies (DRS), the fund offers a diversified index-based way to play the trend.

Obviously, it’s a sector that’s unaffected by problems in subprime lending or fears about a consumer spending slowdown. And it held up well over the summer, even better than other popular “defensive” sectors like health care. Investment adviser Gary Gordon pointed out the other day that even with the sector’s recent run-up, valuations look reasonable.

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