Despite the uncertainty related to sequestration, huge defense budget cuts, and cancellation of big-ticket programs, the global aerospace and defense industry has nicely held up so far this year. This is largely attributable to technological innovations, big contracts, acquisitions and growing commercial demand.

Since the domestic aerospace and defense sector is facing budget cuts and a constrained spending environment from the U.S. government, the industry is looking for growth from international orders.

Additionally, a number of new emerging markets as well as developed nations, such as India, Japan, the United Arab Emirates, Saudi Arabia and Brazil, are boosting defense spending and generating business for the U.S. aerospace and defense companies.

Still, the U.S. is the leader in global defense spending. The country is not only a major superpower, but it also has strategic alliances with other foreign nations that have major military strengths and geopolitical concerns.

The country sometimes shares its military technology and supplies sophisticated weapons to its allies. These activities in turn boost the revenue of the defense operators and suppliers who sell these military applications to nations around the world (read: Any hope for Aerospace and Defense Industry ETFs in 2013?).

However, on the flip side, the industry's position is challenged by global competition, changes in technology, national and worldwide economic conditions, and global policies affecting defense, civilian and commercial aviation. Going forward, the industry, in particular the defense sector, will face challenges as the federal government will look for solutions to the ongoing budget crisis.

Further, sequestration still remains an overhang both in the civil and military sectors. The companies that have little diversification outside the U.S. are highly susceptible to spending cuts from sequestration. On the other hand, those with an international order book would find it less difficult to face the brunt of sequestration (read: With Sequester Ahead, Are Defense ETFs in Trouble?).

Overall, the industry has been performing well compared to other sectors, so investors seeking diversification should consider ETFs that target the aerospace & defense industry in the portfolio.

Considering the broad issues and opportunities, a look at top ranked aerospace & defense ETFs could be a winning choice for investors seeking to benefit from the positive market trends. One way to find a top ranked ETF in the financial space is by using the Zacks ETF Ranking system (read: Zacks ETF Rank Guide).

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Time to Buy This Aerospace and Defense ETF?