SOURCE: Spade Defense Index

December 19, 2007 09:35 ET

Defense Sector Set to Outperform the S&P500 for Eighth Consecutive Year

WASHINGTON, DC--(Marketwire - December 19, 2007) - Compiling a track record that many professional money managers and mutual funds would envy, the defense and homeland security sector is on pace to outperform the S&P500 benchmark for an eighth consecutive year. The benchmark SPADE Defense Index (AMEX: DXS) currently has a year-to-date gain of 21.5%, nearly 20% better than the widely followed S&P500 broad-market index.

During this period, the SPADE Defense Index has outperformed the S&P500 by more than 10% in six of the eight yearly periods and gained better than 19% in four of the previous five years. Since 2000, the SPADE Defense Index has produced a total cumulative gain of 159.8%, as compared to the S&P500's 10.2%, and the Russell 3000's 5.9%. The PowerShares Aerospace & Defense ETF (AMEX: PPA), which seeks to replicate the SPADE Defense Index, has seen 2007 inflows of nearly 400% as investors add defense to their core portfolios.

According to Scott Sacknoff, President of SPADE Indexes, "Reporters producing end-of-year market stories should not ignore the returns of a sector that is in the midst of a long investment cycle and whose companies generate nearly 5% of U.S. GDP.

"Although much of the gains can be attributed to government spending in the aftermath of 9-11 and the war in Iraq, the defense sector's positive performance predates the 9-11 attack on the U.S., and trends suggest that growth may continue even after a pullback from Iraq occurs. Notably:

1.  The mission to protect and defend the U.S. and its citizens remains a
    critical goal of government.
2.  Support for defense among Congress and political leaders remains
    strong.
3.  The recently approved core Department of Defense budget for FY-08 is
    10% higher than FY-07.
4.  A tremendous need to recapitalize equipment used in Iraq and modernize
    defense equipment and systems -- some of which dates to the Eisenhower
    Administration.
5.  Continued expansion in related business lines such as commercial
    aircraft.

"As always, politics remains the biggest risk to the sector."

Mr. Sacknoff concluded stating that, "Current economic issues related to the subprime loan crisis, inflation, and the possibility of recession tend to have less of a direct impact on the defense sector which derives much of its revenues from government budgets. While the sector may move in sympathy with the overall market at times, the underlying factors driving the defense industry remain quite different."

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