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Defense stocks up 40 percent since election, far and away best 'Trump trade'

  • Since Nov. 8, the iShares U.S. Aerospace & Defense exchange-traded fund has risen 40 percent.
  • Kratos Defense & Security Solutions, AeroVironment and Aerojet Rocketdyne have been the best-performing components in the fund, more than doubling their stock values.
  • Geopolitical tensions, along with dealmaking activity, have helped boost defense stocks.
An F/A-18E Super Hornet assigned to the Stingers of Strike Fighter Attack Squadron (VFA) 113 takes off from the flight deck of the aircraft carrier USS Theodore Roosevelt.
Source: US Navy
An F/A-18E Super Hornet assigned to the Stingers of Strike Fighter Attack Squadron (VFA) 113 takes off from the flight deck of the aircraft carrier USS Theodore Roosevelt.

Financial stocks have risen sharply since President Donald Trump's election, but the defense sector has left them in the dust.

Since Nov. 8, the iShares U.S. Aerospace & Defense exchange-traded fund (ITA) has risen 40 percent. By comparison, the Financial Select Sector Fund (XLF) — the second-best performing sector in that time period — is up 31 percent.

Kratos Defense & Security Solutions, AeroVironment and Aerojet Rocketdyne have been the best-performing components in the defense-oriented ETF, more than doubling their stock values.

Ken Hebert, an analyst at Canaccord Genuity, told CNBC in an email that geopolitical tensions and merger activity have contributed to the sharp rise in defense stocks.

The "global threat environment has led to a near-term increase in activity levels. Concerns over N. Korea, more troops in Afghanistan, and better near-term activity levels have had an impact" Herbert said.

Geopolitical tensions between the U.S. and other countries — especially North Korea — have risen considerably since Trump's election.

Last month, the isolated Asian nation successfully tested a hydrogen bomb that can be mounted onto an intercontinental ballistic missile.

Regarding dealmaking in the space, Herbert said the "use capital for growth is attractive, as this is viewed favorably for stocks of all sizes."

On Sept. 4, United Technologies announced it would buy Rockwell Collins for $30 billion, including debt. Since that deal was announced, shares of Rockwell have risen 1.9 percent and United Tech, 0.3 percent.