Key points:
* Companies comprising the SPDR S&P Aerospace & Defense ETF derive 48% of their revenue from the U.S. government;
* Cumulative government exposure likely exceeds 50% when we factor in business with foreign governments;
* Government exposure is fairly concentrated, with 10 companies accounting for 63% of the total U.S. government exposure;
* 44% of XAR constituents derive over 50% of their sales from business with the Federal government;
* 22% of XAR holdings derive between 25% and 50% of their revenue from business with the U.S. government.
ETF Overview
The SPDR S&P Aerospace & Defense ETF (NYSE: XAR) is one of the largest aerospace & defense ETFs covering the U.S. markets. Its holdings are fairly concentrated, with the XAR investing its assets in only 32 companies. The top ten holdings account for circa 48.15% of net assets:
Figure 1: Top 10 holdings of the SPDR S&P Aerospace & Defense ETF
|
Company |
Weight |
| Spirit AeroSystems | 5.38% |
| BWX Technologies | 4.91% |
| Boeing | 4.82% |
| Hexcel | 4.78% |
| L3Harris Technologies | 4.77% |
| Axon Enterprise | 4.75% |
| Curtiss Wright | 4.70% |
| Howmet Aerospace | 4.68% |
| Huntington Ingalls Industries | 4.68% |
| Northrop Grumman | 4.66% |
| Total Top 10 Holdings | 48.15% |
Source: State Street Global Advisors Website (Accessed July 2024)
U.S. Government Revenue Exposure
In the U.S. ETF universe, the SPDR S&P Aerospace & Defense ETF is one of the most exposed to U.S. government revenue, especially among its defense components. That said, there are nuances in the way ETF holdings disclose U.S. government exposure in their 10-Q and 10-K filings. For example, some companies report foreign military sales as part of their U.S. government exposure, while others report it separately.
There are also two ETF components, Axon Enterprises and Mercury Systems, which do not provide detailed disclore on U.S. government exposure. What is certain however is that both companies rely, directly or indirectly, for a substantial amount of their revenue on the U.S. government, with Axon Enterprises heavily exposed to local government procurement dynamics while Mercury Systems is a subcontractor for various prime contractors working for the U.S. government.
Adjusting for the two companies outlined above and the respective weights each of the 30 other components have in the ETF, with a high degree of confidence we can estimate that XAR ETF components derive 48% of their revenue from the U.S. government. The cumulative government exposure is even higher as there are quite a few companies selling to foreign governments as well.
Which XAR Components Have the Highest U.S. Government Exposure
In Figure 2 below, we highlight the XAR component companies that derive a majority of their revenue from the U.S. government. The ranking does not depend on the weight the companies have in the exchange traded fund.
Figure 2: XAR components that derive a majority of their revenue from the U.S. government
| Company | U.S. Government Exposure |
| Northrop Grumman | 87% |
| V2X | 86% |
| Huntington Ingalls Industries | 81% |
| Leonardo DRS | 81% |
| BWX Technologies | 77% |
| L3Harris Technologies | 77% |
| Lockheed Martin | 73% |
| General Dynamics | 73% |
| MOOG | 73% |
| National Presto | 72% |
| Cadre Holdings | 70% |
| Kratos Defense + Security | 69% |
| Curtiss Wright | 56% |
| Ducommun | 53% |
Source: Most recent 10-Q and 10-K company filings
From Figure 2 above we can observe that fourteen companies (44% of all XAR components) derive a majority of their revenue from the U.S. government. These firms have a weight of 41% in the ETF’s net assets.
Which XAR Components Contribute the Most to the ETF’s U.S. Government Exposure
In Figure 3, we highlight the top ten companies with a high weight in the XAR ETF but also a high U.S. government exposure. These companies are the prime drivers of XAR’s 48% cumulative U.S. government exposure.
Figure 3: Top 10 XAR components by contribution to the ETF’s U.S. government revenue exposure
| Company | U.S. Government Exposure Contribution |
| Northrop Grumman | 4.06% |
| Huntington Ingalls Industries | 3.79% |
| BWX Technologies | 3.78% |
| L3Harris Technologies | 3.68% |
| Lockheed Martin | 3.38% |
| General Dynamics | 3.22% |
| Curtiss Wright | 2.63% |
| Boeing | 2.26% |
| RTX | 1.85% |
| TransDigm Group | 1.76% |
| Cumulative top 10 Contribution | 30.4% |
Source: Author calculations
From Figure 3 above we observe that 10 companies account for a combined 30.4% of the ETF’s 48% U.S. government exposure, or 63% of the total ETF government exposure.
XAR Components with 25-50% U.S. Government Revenue Exposure
In Figure 4, we highlight the XAR components with moderate U.S. government revenue exposure, implying they derive 25-50% of their revenue from the Federal Government:
Figure 4: XAR components with 25-50% revenue dependence on the U.S. government
| Company | U.S. Government Exposure |
| Boeing | 47% |
| RTX | 42% |
| TransDigm Group | 39% |
| Triumph Group | 37% |
| Heico | 35% |
| AeroVironment | 34% |
| AAR | 30% |
Source: Most recent 10-Q and 10-K company filings
We observe that the group of companies with moderate government exposure is quite small, consisting of only 7 constituents, or 22% of all ETF holdings. Their combined weight in the XAR ETF stands at about 25%.
XAR Components with Below 25% U.S. Government Revenue Exposure
Finally, in Figure 5, we highlight the XAR components with low U.S. government revenue exposure, implying they derive below 25% of their annual sales from the Federal Government:
Figure 5: XAR components with revenue dependence on the U.S. government below 25%
| Company | U.S. Government Exposure |
| Hexcel | 24% |
| Textron | 24% |
| Astronics | 21% |
| Woodward | 17% |
| Spirit AeroSystems | 15% |
| Howmet Aerospace | 15% |
| Rocket Lab USA | 12% |
| Archer Aviation | 0% |
| Virgin Galactic Holdings | 0% |
Source: Most recent 10-Q and 10-K company filings
We note that the group of companies with below 25% U.S. government revenue exposure is quite small, at just 9 constituents, or 28% of the ETF total. Their combined weight in the XAR ETF stand at about 28%.
Conclusion
The SPDR S&P Aerospace & Defense ETF (NYSE: XAR) is a fairly concentrated ETF, with the top 10 of its 32 holdings accounting for 48% of the ETF's total net asset value. The exposure of the XAR ETF to revenue derived from the U.S. government stands at about 48%, with 63% coming from just 10 companies.
We should note that the cumulative government exposure of XAR is likely marginally above 50% as a number of XAR constituents do business with foreign governments as well. We can roughly split the 32 XAR components depending on their U.S. government revenue exposure:
- 44% of XAR constituents derive over 50% of their revenue from the U.S. government;
- 22% of XAR components derive between 25% and 50% of their revenue from the Federal government;
- 28% of XAR components derive less than 25% of their revenue from the U.S. government;
- 6% of XAR components have insufficient disclosure with regard to their Federal contracting exposure.
It is clear that federal procurement activity is vital for the health of the vast majority of XAR components. To be the first to know about the latest contracts awarded in the United States, check out our daily-updated Government Contract Awards Data Feed.