Shoot for the stars!
Are you bored with your current portfolio? It may be time to look into alternative investment. If so, the Alpen Partners team is equipped to advise you on your investment journey.
In this article, we explore why you should consider alternative investments and take a look at one of the leading alternative sectors, especially in the United States: Aerospace and Defense.
An investment that does not fall into a traditional asset class, such as stocks and bonds, is considered an alternative investment. Institutional investors or high-net-worth individuals hold alternative investments.
Alternative investments are usually more difficult to handle and profit from due to low liquidity. Stocks of large companies are much easier to sell than pieces of art or classic cars. A lot of these investments also have high minimum investments and fee structures compared to traditional investment types.
Diversification and hedging are two perks of alternative investments since they have little correlation with standard asset classes, making alternative investments the perfect addition to your portfolio. This has led many institutional funds, like pensions, to place a small amount their portfolios to alternative investments such as gold.
While the initial investment price of an alternative investment may be high, transaction fees usually remain low because of the lower rate of turnover. You will probably hold onto these investments for longer than other investments but it can result in tax benefits because investments held for over a year are subject to lower capital tax gains.
Alternative investments can include art and car collection, hedge funds, cryptocurrency, gold, and, our topic here, aerospace and defense.
About Aerospace and Defense
This sector is one of the biggest and most powerful industries in the U.S. The aerospace sector supplies five markets which are military aircraft, missiles, space, commercial airlines, and general aviation. Additionally, the aerospace sector in the United States is viewed as the largest in the world, supplying military and civil aerospace hardware to locations all over the world.
The industry, excuse our pun, took flight in the U.S. in 1903 when Wilbur and Orville Wright debuted an airplane capable of sustained flight. In 1908, the brothers secured a contract with the U.S. Army to make one aircraft and license their patents, allowing the Atra Company to manufacture planes in France.
Today, the aerospace and defense industry employs around 500,000 workers in both science and technical jobs and also supports over 700,000 jobs in other related fields. There is much emphasis on research and development of the sector. Of all individuals working in aerospace, 25% of those are engineers, scientists, and technician.
Since aviation is one of the fastest growing industries in the North American country, it has experienced a 14% yearly increase.
The industry produces a vast array of products since flight vehicles, which are the primary product in question, require up to millions of individual parts. Additionally, there are many support systems needed to maintain and operate flight vehicles. Because of this, military aircraft have the largest market share, followed by space systems, civil aircraft, and then missiles.
Aerospace exports also directly and indirectly support more jobs than any other commodity, according to the U.S. Department of Commerce. In fact, the U.S. aerospace industry produced $143 billion in export sales for the U.S. economy.
Investing in Aerospace and Defense
In a portfolio, an investment in the aerospace and defense sector can help add diversification benefits as part of the industrial sector within a cyclical basket. The industry is very large and investors are increasing their interest due to geopolitical uncertainties around the world.
Right now, the only mutual fund that is directly targeted to this specific sector is the Fidelity Select Defense and Aerospace Fund. Started in 1984 the fund has an average annual return in excess of 9% with at least 80% of the fund’s investments in common stock of companies with principal business in manufacturing, research, or marketing of aerospace and defense products. Most of the investments are in technology or industrial stocks.
There are also other funds that have significant holdings in aerospace stock. These will still give investors exposure to the aerospace industry.
Another way to invest in the industry is through ETFs that track the sector. These include the SPDR S&P Aerospace and Defense ETF and the Powershares Aerospace and Defense ETF.
Aerospace and Defense Stocks
Sector frontrunners gained significantly over the past years and have posted improved earnings. In 2017, 90% of the stocks topped earnings and 70% earned more than their expected revenue by second quarter.
There are risks to keep in mind, like in any sector. When choosing a company to invest with, it is important to examine their rate of production of aircraft and quality of their products.
In the end, the sector is looking at a bright future as it grows and develops. Global travel is increasing, which is growing the demand for commercial aircraft, the economy is stable, and the price of crude oil has decreased. If you are looking for an alternative investment, aerospace and defense may be right for you.
Alpen Partners Wealth Management International AG, the sister company of Alpen Partners Wealth Management AG, is now a registered investment advisor at the U.S. Securities and Exchange Commission (SEC). Together with our partner Swiss private banks, our company can now offer the full Swiss private banking experience to American clients, both resident and non-resident.
Building on many years of experience in private banking in Switzerland, Alpen Partners Wealth Management International AG provides investment advisory services to U.S. clients. Swiss banking is highly regarded around the world, well known for being sophisticated and discreet. Choosing Switzerland as a banking destination is choosing years and years of financial stability and growth.
The advantages of having an account in Switzerland include currency and investment diversification, asset protection, and the possibility to deposit assets in some of the oldest and best-capitalized banks in the world.