Aerospace is a dominant theme:

Dominant theme investing has been my focus for the last several years starting with the “echo” technology boom and then on to lumber and now aerospace. These sectors are still in youthful secular bull phases.

Below is the text I authored and published by the Toronto Star business on or about September 7, 2013.

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Traditionally financial planners and investment advisors have embraced two basic rules when advising clients on personal finance and equity investing

Never get divorced, and never buy an airline stock.

The never buy an airline stock rule is deep rooted and for good reason.

Investors have long nightmare like memories when it comes to the North American airline industry. In Canada we have infamous names like Air Canada, Wardair. Canadian Airlines, Zoom Airlines and Canada 3000. In the U.S. the list is too long for this space.

Industry experts have blamed the carnage on de-regulation, rising fuel costs, security costs and various global crises such as the technology bubble of 2000 and the financial crisis of 2008.

The AMEX Airline index (XAL) which is designed to measure the performance of highly capitalized companies in the commercial airline industry peaked in 2000 at the 160 level. By March 2009 the XAL was trading at the 16 level for a stunning loss of 90 per cent,

The dismal performance of the XAL is in sharp contrast to the success of the related commercial and defence manufactures and contractors. Names like he Boeing Company (BA), Honeywell International Inc. (HON) and United Technologies Corp. (UTX) are trading close to recent all-time highs.

Most notable is the list of the top North American manufacturing employers. Names like General Electric Company, General Motors Company, United Technologies Corp, Ford Motor Co., The Boeing Company, Lockheed Martin Corporation and Honeywell International Inc. are all related to trains, planes and automobiles,

The common theme among most of these names appears to be related to aerospace and made in North America.

Loosely defined, aerospace is branch of technology and industry that is shared by three major components, the defence industry, commercial aviation and space exploitation programs such as spaceships and satellites.

Bullish Investors in the aerospace sector have lately chosen to ignore that never buy an airline stock rule. In the U.S. the AMEX Airline index has soared 300 per cent from the March 2009 lows and locally Air Canada and WestJet Airlines Ltd, were among the top performers on the TSX in 2012.

According to Standard & Poor's Capital IQ global air traffic trends are looking positive. They claim the underlying drivers of the commercial aerospace industry are improving global economic growth, an emerging global middle class and the upgrade of an aging fleet of commercial aircraft.

The commercial and defence manufactures are awash with orders from airlines switching to new aircraft.

Some recent Canadian examples would be WestJet Airlines Ltd (WJA) reaching a preliminary agreement to purchase 65 737 MAX aircraft from Boeing Co (BA), and Bombardier Inc. (BBD.B) recently signing a letter of intent to sell 50 Q400 NextGen turboprop aircraft to the Russian state-owned industrial and defence conglomerate Rostec.

If an investor embraces the aerospace theme he or she will need to seek out the companies or investment products that will provide some exposure to the sector

In other words we need to engage in stock picking or seek out sector related exchange traded funds (ETFs).

At the moment there appears to be no commercial airline industry ETFs that would track the AMEX Airline index (XAL). Guggenheim Investments closed nine ETFs back in March 2013 due to lack of investor interest. One of them was the Guggenheim Airline ETF (FAA) which could be goods news to a contrarian investor.

In the U.S. there are several ETFs that will provide direct exposure to all components of the aerospace sector.

The NYSE listed iShares Dow Jones US Aerospace & Defence ETF (ITA) tracks the Dow Jones U.S. Select Aerospace & Defense Index. It has 33 holdings, to include stocks like United Technologies Corporation (UTX), Boeing (BA), Goodrich Corporation (GR) and Lockheed Martin (LMT).

Also listed on the NYSE is the PowerShares Aerospace & Defence ETF (PPA) which tracks the SPADE Defense Index. It has 51 holdings, to include Honeywell International (HON), United Technologies Corporation (UTX), Lockheed Martin (LMT) and Raytheon Corporation (RTN).

Here in Canada the ETF manufactures have avoided the space and so we have to engage in stock picking.

Currently there are only five TSX listed companies in the aerospace sector, CAE Inc. (CAE), Magellan Aerospace Corporation (MAL), Bombardier Inc. (BBD.B), MacDonald, Dettwiler and Associates Ltd. (MDA) and Héroux-Devtek Inc. (HRX)

Some of these names may not be suitable investments and you may need the advice of a fully licensed advisor before making an investment decision.