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What are the best defense and aerospace ETFs?

AlphaOS investment intelligence · Research and education only — not investment advice · Updated Sep 27, 2026

About defense

Direct answer

The leading defense and aerospace ETFs are ITA (iShares U.S. Aerospace & Defense ETF), XAR (SPDR S&P Aerospace & Defense ETF), and PPA (Invesco Aerospace & Defense ETF), which collectively represent the most liquid and widely held vehicles for sector exposure. ITA is the largest by assets under management (~$6B+ AUM) and is heavily weighted toward Lockheed Martin, RTX, and Boeing. XAR uses an equal-weight methodology, reducing concentration risk across ~30 holdings. PPA includes government contractor exposure beyond pure aerospace. All three have delivered strong multi-year performance driven by elevated global defense budgets following geopolitical escalation in Europe and the Indo-Pacific, with NATO member nations increasing spending commitments above the 2% GDP threshold.

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Key Takeaways

  • ITA (iShares U.S. Aerospace & Defense ETF) is the largest defense ETF by AUM with over $6 billion, offering concentrated exposure to top contractors like Lockheed Martin and RTX
  • XAR (SPDR S&P Aerospace & Defense ETF) employs an equal-weight strategy across ~30 holdings, reducing single-stock concentration risk compared to cap-weighted peers
  • PPA (Invesco Aerospace & Defense ETF) holds ~60 companies and includes broader government contractor and technology exposure, making it the most diversified of the three
  • DFEN (Direxion Daily Aerospace & Defense Bull 3X ETF) provides 3x leveraged daily exposure for short-term tactical traders, carrying significantly higher risk and decay
  • Global defense ETFs such as NATO (Themes Global Defense & Aerospace ETF) and SHLD (Global X Defense Tech ETF) offer non-U.S. contractor exposure including Rheinmetall, BAE Systems, and Airbus
  • European defense spending surged following Russia's 2022 invasion of Ukraine, with NATO collectively pledging 2%+ of GDP — directly boosting ETF constituents with international contracts
  • Expense ratios range from 0.35% (XAR) to 0.58% (PPA), with ITA at approximately 0.40% — all relatively cost-efficient for sector-specific vehicles
  • The sector outperformed the S&P 500 in 2022 and 2023 as defense budgets globally expanded, with ITA returning over 20% in 2023 alone

Evidence & Analysis

  • ITA AUM exceeded $6 billion as of late 2023, making it the most liquid U.S. defense ETF with tight bid-ask spreads suitable for institutional and retail investors
  • U.S. defense budget reached approximately $886 billion for FY2024, the largest nominal defense appropriation in American history, directly benefiting ETF top holdings
  • NATO reported in 2023 that 11 of 31 member nations met the 2% GDP defense spending threshold, up from just 3 in 2014, expanding revenue for multinational defense contractors
  • XAR's equal-weight structure has historically reduced drawdown during periods when Boeing underperformed, as Boeing comprises only ~3-4% vs. ~18% in cap-weighted peers
  • Lockheed Martin, RTX, Northrop Grumman, and General Dynamics collectively represent 40-60% of most major U.S. defense ETFs, creating correlated return profiles across funds
  • European defense ETF exposure grew meaningfully in 2022-2023 as Rheinmetall stock rose over 100% following Germany's historic Zeitenwende defense spending pledge of €100 billion

Key Companies

ITA

iShares U.S. Aerospace & Defense ETF

Largest defense ETF by AUM (~$6B+), cap-weighted with heavy Lockheed Martin and RTX concentration

XAR

SPDR S&P Aerospace & Defense ETF

Equal-weight methodology across ~30 holdings, 0.35% expense ratio — most balanced U.S. defense ETF

PPA

Invesco Aerospace & Defense ETF

Broadest U.S. defense ETF with ~60 holdings including government IT and services contractors

SHLD

Global X Defense Tech ETF

Global defense tech focus including Rheinmetall, BAE Systems, and Airbus — non-U.S. exposure

DFEN

Direxion Daily Aerospace & Defense Bull 3X ETF

3x leveraged daily defense ETF for tactical short-term exposure — high decay risk for long-term holders

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