247Wallst·2026-03-31 16:30Core Viewpoint - The Invesco Aerospace & Defense ETF (PPA) has experienced an 11.55% decline over the past month, trading at approximately $160, despite the ongoing conflict in Iran which typically benefits defense contractors [2][5][6]. Performance Summary - PPA's top holdings show significant divergence: Lockheed Martin (LMT) has increased by 24.39% year-to-date, RTX (RTX) is nearly flat at 2.38%, while Boeing (BA) has decreased by 12.85% due to supply chain disruptions caused by the Iran conflict [2][9]. - The ETF's price has fallen from $181 in early March to its current level, indicating a disconnect between geopolitical events and fund performance [6]. Valuation and Market Conditions - Rising Treasury yields, currently at 4.44%, are compressing valuations across the fund's holdings, with PPA trading at a forward P/E of 33, which assumes continued defense spending despite higher discount rates affecting long-duration contracts [3][10]. - The fund's average market capitalization is $129.8 billion, reflecting a concentration in mega-cap contractors, which increases the risk of significant impact from earnings disappointments among top holdings [13][14]. Specific Company Impacts - Boeing, as the third-largest holding at 7.78% weight, has been negatively affected by the Iran conflict, leading to a 16.84% decline over the past month [8]. - Lockheed Martin and RTX have performed better, with Lockheed down 8.58% recently but still up year-to-date, while RTX has seen a slight pullback of 7.63% [9]. Future Considerations - The trajectory of Treasury yields and the ability of Lockheed Martin and RTX to convert backlog growth into earnings will be critical for PPA's valuation sustainability [12][15].