I grew up near Fort Washington, Maryland, which had the dubious distinction of allowing the British fleet to sail up the Potomac and raid Alexandria, Virginia. (British troops had bypassed the fort and burned Washington three days earlier.)
The fort was a shore battery of about 50 cannons in 1814. Only five of them were in working condition. And of the 200 men needed to man the battery, only 49 were available — and of them, only half were considered fit for duty.
The commander checked out the nine British warships, which had a combined 74 guns, looked at his five cannons and motley soldiers, and ordered them to blow up the ammo dump and run for their lives. This decision cost him his pension, but it also showed Congress that maintaining defenses was probably a good idea. The new Fort Washington was an impressive pile of masonry and was joined, during the Civil War, by Fort Foote, a few miles up the river.
U.S. defense spending ebbed and flowed until World War II, and has been an enormous section of the U.S. budget for the past three decades. The U.S. spends $615 billion, or 18% of its budget, on defense, according to the Center on Budget and Policy Priorities. (This figure doesn’t include the $145.7 billion in spending for veterans). If you’re looking for rockets’ red glare, you’ve come to the right place.
Remarkably few mutual funds specialize in the defense industry, despite the enormous amounts of money pumped into the industry — and despite those companies’ strong performance. Fidelity Select Defense and Aerospace seems to be the only traditional open-ended fund dedicated to defense. It has gained 18.69% a year the past five years, vs. 17.69% for the Standard and Poor’s 500 stock index.
But the best plays in aerospace and defense the past five years have been iShares US Aerospace & Defense (ITA) and SPDR Aerospace & Defense (XAR), which have gained an average 25.04% and 26.98%, respectively. The difference between the two: The SPDR offering seems more equally weighted, giving greater emphasis to small- and mid-cap defense stocks.
We’ve come a long ways from the days when nine foreign sailing ships could sail up a U.S. river and loot it, although the world seems no less dangerous. Defense companies have not only the unlikely threat of world peace, but the real complications of dealing with Congress — so they’re not for the faint-hearted. Then again, few things are these days.