Tensions & Airlines Boost ETFs (ITA, PPA, BA, LMT)

It is no surprise to anyone that the world is a dangerous place and recently several hot spots have experienced escalations.

The U.S. appears to be determined to take out terrorist group ISIS in the Middle East after the beheading of an American journalist.

The war in Syria continues with no end in sight and the U.S. is now flying drones over the countries airspace, which could be an indication of more involvement.

Whether it is the Middle East or the Ukraine border, the bottom line is that geopolitical events are increasing around the globe.

From an investment viewpoint it will likely lead to more money being spent by countries around the world, including the U.S., on defense equipment. Add in the fact that the durable goods number jumped 22.6 percent Tuesday after Boeing BA logged $80 billion in orders for its new 777 aircraft and the aerospace and defense sector cannot be overlooked.

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There are two aerospace and defense ETFs that may benefit from the increased tensions as well as a pickup in durable goods orders.

The iShares U.S. Aerospace & Defense ETF ITA is comprised of 38 stocks throughout the aerospace and defense industry. Its three largest holdings include United Technology UTX 8.8 percent, Boeing 8.6 percent, and Lockheed Martin Group LMT 6.9 percent. ITA has experienced a modest four percent gain year to date, and is currently trading at a two month high.

With an expense ratio of 0.43 percent it is slightly lower than its competitors. With Boeing's most recent bulk order expected to keep them busy for the foreseeable future it could help keep ITA on the move.

The PowerShares Aerospace & Defense Portfolio PPA is a basket of 52 stocks in the sector. Its top three holdings being LMT at 6.8 percent, Honeywell International HON at 6.5 percent, and BA making up 6.2 percent.

PPA is up six percent, beating ITA by 200 basis points. An expense ratio of 0.66 percent makes the ETF slightly more expensive than ITA.

It is nearly impossible to predict the flare ups around the world, but if history is any indication, it will not end anytime soon.

The trend of more intense fighting and a move by the airline industry to upgrade their aircraft have the aerospace and defense sector well positioned.