Defense Budget Growth Fuels Investment Gains

President Bush's release of the FY-07 budget shows that protecting our nation remains the most vital and critical element of government. For investors, this is a factor that should not be ignored.

[ClickPress, Mon Feb 06 2006] President Bush's FY-07 budget request continues to favor spending on defense and homeland security. The budget for the Pentagon is set to increase by nearly 5% to $439.3 billion including $84.2 billion for weapon systems, an 8% gain. This amount is in addition to $120 billion requested by the Pentagon to help pay for the wars in Iraq and Afghanistan, and an estimated $40 billion in classified and intelligence-agency related programs. With funding for the Department of Homeland Security set to rise by 5% to $30.8 billion, the President has proposed spending an estimated $600 billion on the security of our nation.

With nearly 5% of U.S. GDP spent on defense and homeland security, since the events of September 11, 2001, investors have seen dramatic gains in the financial performance of many firms operating in this area.

The SPADE Defense Index (AMEX: DXS), a financial benchmark for defense, homeland security, and space, has beaten the S&P500 for 6 consecutive years and 18 of the last 22 quarters. Since 2000, the Index has gained 79.2% vs. a 15% decline in the S&P500.

“The breath of this multi-year rally extends beyond the big 5 defense prime contractors of Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT), General Dynamics (NYSE: GD), Northrop Grumman (NYSE: NOC) and Raytheon (NYSE: RTN). Mid-cap companies such as Armor Holdings (NYSE: AH) and L-3 Communications (NYSE: LLL) have seen nice runs as have defense information technology firms like CACI (NYSE: CAI) and SI International (NASDQ: SINT).”

To make it easier for individuals to invest in the sector, in October 2005, Powershares licensed the SPADE Defense Index and launched the first exchange-traded fund (ETF) to focus on defense and homeland security. Trading under the symbol 'PPA', the Powershares Aerospace & Defense Portfolio ETF (AMEX: PPA) has attracted more than $60 million in its first months of operation with trading volume in January more than doubling from December.

According to Scott Sacknoff, manager of the SPADE Defense Index, ‘President Bush’s FY07 budget shows that protecting our nation remains the most vital and critical element of government. For investors, this is a factor that should not be ignored.”

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