Latest news, trends and ideas for investing with exchange traded funds | ETF Commentary

With a new administration coming to Washington, a debate has emerged over which class of ETFs will benefit from all of the promised new spending – butter or guns?

SmartMoney’s Paulette Miniter argues for guns in the article Military Contractors May Thrive Under Obama.

Her case? The aerospace and defense sector has actually done better during Democratic administrations, according to a recent Merrill Lynch report. In addition, national security stocks are a good hedge against losses in the broader market in a recession. For example, the sector has beat the S&P 500 index by an average 17% in the past two recessions.

Miniter highlights two ways to gain exposure to the Defense sector with ETFs – the iShares Dow Jones US Aerospace & Defense Fund (ITA) and the PowerShares Aerospace & Defense Portfolio (PPA).

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The popular wisdom in sports is that the team with the best defense wins. Wall Street Journal Online writer David Gaffen builds on this theme in profiling money managers who are getting back into the market with defensive stocks.

In the MarketBeat blog post Defense Wins Championships… and Helps Returns, Gaffen notes that several managers see the recent steep fall off in the market as an opportunity to buy undervalued stocks at discounts that are rarely seen.

Managers are focusing on companies that can move higher despite a struggling economy, such as defense contractors, staples and even some oil companies.

In particular, Gaffen notes that since Thursday’s close, the defense-oriented AMEX SPADE Defense Sector ETF (PPA) is up 6%, and the Consumer Staples Select Sector SPDR Fund (XLP) has gained 4%.

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