NEW YORK ( TheStreet ) -- Aerospace and defense funds have been soaring lately although you'd think no one was noticing.

During the past year, iShares Dow Jones U.S. Aerospace & Defense ETF (ITA) returned 37.4%, compared with 17.6% for the S&P 500 Index.Another exchange-traded fund that gained more than 30% was PowerShares Aerospace & Defense (ETF) (PPA). The big gains came as many companies in the sector reported surprisingly strong earnings.

Defense stocks had been under a cloud because of the spending reductions caused by the sequester that went into effect in March 2013. But the Washington cutbacks did less damage than many Wall Street analysts expected.

Worried about declining sales, defense contractors prepared for the sequester by laying off employees and cutting costs sharply. In addition, foreign sales remained strong. As a result, profit margins proved resilient.

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Aerospace, Defense Funds Are Quietly Beating the Market in 2014