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Defense Budget Growth Fuels Investment Gains
February 6, 2006 - Washington DC
President Bush's FY-07 budget request continues to favor spending on defense
and homeland security. The discretionary budget for the Pentagon is set to increase by
nearly 5% to $439.3 billion including $84.2 billion for weapon systems, an
8% gain. This amount is in addition to $120 billion requested by the
Pentagon to help pay for the wars in Iraq and Afghanistan, and an estimated
$40 billion in classified and intelligence-agency related programs. With
overall funding for the DHS set to rise by 6% to 42.7 billion and the
discretionary budget set to rise by 5% from $30.8, billion the President has proposed spending an estimated $600 billion on
the security of our nation.
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With nearly 5% of U.S. GDP spent on defense and homeland security, since the
events of September 11, 2001, investors have seen dramatic gains in the
financial performance of many firms operating in this area.
The SPADE Defense Index (AMEX: DXS), a financial benchmark for defense,
homeland security, and space, has beaten the S&P500 for 6 consecutive years
and 18 of the last 22 quarters. Since 2000, the Index has gained 79.2% vs. a
15% decline in the S&P500.
“The breath of this multi-year rally extends beyond the big 5 defense prime
contractors of Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT), General
Dynamics (NYSE: GD), Northrop Grumman (NYSE: NOC) and Raytheon (NYSE: RTN).
Mid-cap companies such as Armor Holdings (NYSE: AH) and L-3 Communications
(NYSE: LLL) have seen nice runs as have defense information technology firms
like CACI (NYSE: CAI) and SI International (NASDQ: SINT).”
To make it easier for individuals to invest in the sector, in October 2005,
Powershares licensed the SPADE Defense Index and launched the first
exchange-traded fund (ETF) to focus on defense and homeland security. The
Powershares Aerospace & Defense Portfolio ETF trades under the symbol ‘PPA’
(AMEX: PPA) and has attracted more than $60 million in its first months of
operation with trading volume in January more than doubled from December.
According to Scott Sacknoff, manager of the SPADE Defense Index, ‘President
Bush’s FY07 budget shows that protecting our nation remains the most vital
and critical element of government. For investors, this is a factor that
should not be ignored.”
For more information on the SPADE Defense Index, please visit:
http://www.spadeindex.com
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Disclaimers: The information presented in this email is for informational
purposes and should not represent a solicitation or an offer to purchase an
investment product. SPADE and the SPADE Defense Index are registered
trademarks of the ISBC. Powershares is a registered trademark of Powershares
Capital Management.
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