International tensions stay excessive in 2025. Russia’s invasion of Ukraine has dragged on for greater than three years in a grinding conflict of attrition. Israel continues its army marketing campaign in Gaza, and alongside the U.S., has carried out surgical strikes concentrating on Iran’s nuclear websites and regime management.
Governments all over the world have taken discover and acted. In late June, NATO, a army alliance of 32 international locations together with the U.S., Canada and most of Europe, held a periodic summit in The Hague.
Member nations agreed to considerably enhance protection spending targets from the normal 2% of gross home product (GDP) to five%.
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This was seemingly influenced by ongoing considerations about Russian President Vladimir Putin’s expansionist ambitions, alongside renewed strain from a second Trump administration that has been vocally crucial about America’s outsized position in NATO.
Collectively, these developments have created sturdy tailwinds for aerospace and protection ETFs, which have attracted vital inflows in 2024 and 2025.
Some traders are utilizing these exchange-traded funds as a hedge towards geopolitical instability, whereas others see them as a solution to profit from a surge in world army spending.
However not all aerospace and protection ETFs are created equal. Earlier than you make investments, it is necessary to know how every fund selects and weights its holdings, as a result of these selections can drive very completely different efficiency outcomes.
What goes into an aerospace and protection ETF?
Aerospace and protection ETFs would possibly sound like a slim area of interest, however their holdings could be surprisingly various. These funds aren’t simply full of corporations that make fighter jets and missiles, although these are actually represented.
The business really features a vast mixture of producers, suppliers, service suppliers and contractors that help protection and aerospace operations in several methods.
A big portion of most protection ETFs is often allotted to main prime contractors, that are the massive corporations that construct full weapons methods and platforms. The “Huge 5” embody:
Lockheed Martin (LMT), maker of the F-35 fighter jet, Black Hawk helicopters and HIMARS rocket methods.
RTX (RTX), previously Raytheon, produces the Patriot missile protection system, in addition to the Tomahawk cruise missile.
Northrop Grumman (NOC) is chargeable for the B-21 Raider stealth bomber and numerous missile protection methods.
Boeing (BA) provides army plane just like the F/A-18 Tremendous Hornet and the AH-64 Apache assault helicopter.
Normal Dynamics (GD) builds Abrams tanks, Stryker armored autos and Virginia-class nuclear submarines.
These corporations dominate U.S. protection procurement and lobbying efforts. They design and ship the whole platforms that make up a lot of recent militaries’ arsenals.
However many different aerospace and protection corporations play a extra specialised position, supplying key parts reasonably than full methods. For instance:
GE Aerospace (GE) primarily manufactures jet engines for each army and business plane.
L3Harris Applied sciences (LHX) focuses on protection electronics, communications methods and house sensors.
TransDigm Group (TDG) provides extremely engineered plane parts akin to actuators, ignition methods and cockpit controls utilized in each army and business platforms.
Some main names within the house aren’t pure performs. They might be massive industrial conglomerates with a major, however not unique, give attention to protection.
Honeywell Worldwide (HON) is an efficient instance. Whereas it supplies avionics, navigation and surveillance methods to the army, it additionally has main operations in industrial automation and constructing applied sciences.
Aerospace and protection publicity is not restricted to the U.S., both. Europe is within the midst of a rearmament push, and plenty of regional contractors are drawing extra investor consideration:
Rheinmetall (Germany) makes tanks, artillery and ammunition methods.
Leonardo (Italy) provides helicopters, plane and electronics.
Saab (Sweden) produces the Gripen fighter jet and radar methods.
Dassault Aviation (France) builds the Rafale multirole fight plane.
BAE Programs (U.Okay.) gives a large portfolio spanning land, sea, air and cyber.
Some aerospace and protection ETFs could forged the online even wider by together with cybersecurity, surveillance and intelligence contractors. These corporations do not manufacture bodily weapons, however play an more and more very important position in trendy protection:
Booz Allen Hamilton (BAH) supplies consulting and expertise options to the Pentagon and intelligence companies.
Palantir Applied sciences (PLTR) develops knowledge analytics platforms used for army intelligence, concentrating on and situational consciousness.
Relying on the ETF, the definition of “protection” can stretch past tanks and plane to incorporate the digital spine of nationwide safety. That is why it pays to look intently at what every fund really holds.
How we selected the perfect aerospace and protection ETFs
We began by excluding leveraged and inverse ETFs, that are designed for short-term buying and selling and should not appropriate for long-term traders. We centered solely on long-only funds that supply unleveraged publicity to the aerospace and protection sector.
To make sure value effectivity and ease of buying and selling, we capped expense ratios at 0.60% and required a 30-day median bid-ask unfold under 0.25%. We additionally set a minimal $500 million in property underneath administration (AUM) to scale back the chance of fund closure and guarantee adequate scale and investor curiosity.
These screens helped us establish funds which are moderately priced, liquid and constructed to final. These are key attributes for anybody seeking to spend money on the long-term developments driving protection and aerospace spending.
iShares U.S. Aerospace & Protection ETF
(Picture credit score: Getty Photos)
- Belongings underneath administration: $8.3 billion
- Expense ratio: 0.40%
- 30-day median bid-ask unfold: 0.03%
The iShares U.S. Aerospace & Protection ETF (ITA) has one of many longest observe data within the class, having launched in Could 2006.
It tracks the Dow Jones U.S. Choose Aerospace & Protection Index and holds a concentrated portfolio of 38 home corporations. Because of its measurement and longevity, it is typically thought-about the default choice for a lot of traders on this house.
Nonetheless, ITA is market cap-weighted, which creates notable imbalances. GE Aerospace makes up 20.7% of the portfolio, adopted by RTX at 14.7% and Boeing at 8.8%.
After that, allocations drop off rapidly, with Howmet Aerospace (HWM) being the fourth-largest holding at simply 4.7%.
Be taught extra about ITA on the iShares supplier website.
Invesco Aerospace & Protection ETF
(Picture credit score: Getty Photos)
- Belongings underneath administration: $5.7 billion
- Expense ratio: 0.57%
- 30-day median bid-ask unfold: 0.05%
The Invesco Aerospace & Protection ETF (PPA) tracks the SPADE Protection Index, a bespoke benchmark developed by a defense-focused analyst agency reasonably than a significant index supplier.
Whereas the index has historic knowledge going again to December 1997, PPA itself launched in October 2005, giving it a barely longer observe document than ITA.
PPA makes use of a modified market-cap weighting strategy that limits the affect of the biggest corporations. This helps keep away from overexposure to diversified corporations the place protection is only one enterprise phase, leading to a extra balanced portfolio.
Whereas it shares many holdings with ITA, it’s notably much less top-heavy.
Be taught extra about PPA on the Invesco supplier website.
SPDR S&P Aerospace & Protection ETF
(Picture credit score: Getty Photos)
- Belongings underneath administration: $3.6 billion
- Expense ratio: 0.35%
- 30-day median bid-ask unfold: 0.06%
The SPDR S&P Aerospace & Protection ETF (XAR) tracks the S&P Aerospace & Protection Choose Trade Index.
As an alternative of being weighted by market cap, XAR’s benchmark makes use of an equal-weight methodology that provides every holding roughly the identical allocation no matter measurement. This reduces focus threat and prevents the most important contractors from dominating the portfolio.
XAR presently holds 36 corporations, with the highest positions reflecting latest outperformers between rebalancing cycles.
Its equal weighting additionally will increase publicity to mid- and small-cap shares, which are typically extra concentrated within the aerospace phase than pure protection.
Be taught extra about XAR on the SPDR supplier website.
International X Protection Tech ETF
(Picture credit score: Getty Photos)
- Belongings underneath administration: $3.0 billion
- Expense ratio: 0.50%
- 30-day median bid-ask unfold: 0.05%
The International X Protection Tech ETF (SHLD) launched in September 2023 and rapidly gained traction, posting a 64% annualized return since inception as of June 30, 2025.
SHLD tracks the proprietary International X Protection Tech Index, which takes a broader strategy than conventional aerospace-heavy ETFs akin to ITA, PPA or XAR. Slightly, it focuses extra on army {hardware} and protection expertise than on business aerospace.
Widespread holdings with ITA, PPA and XAR embody names akin to Lockheed Martin, RTX and Normal Dynamics. However SHLD expands past the U.S., with publicity to European protection corporations akin to Leonardo, Rheinmetall and Thales.
Notably, it has a robust give attention to intelligence, with Palantir Applied sciences coming in as its third-largest holding.
Be taught extra about SHLD on the International X supplier website.
Choose STOXX Europe Aerospace & Protection ETF
(Picture credit score: Getty Photos)
- Belongings underneath administration: $1.0 billion
- Expense ratio: 0.50%
- 30-day median bid-ask unfold: 0.10%
The Choose STOXX Europe Aerospace & Protection ETF (EUAD) gives an internationally centered different to U.S.-centric funds akin to ITA, PPA, or XAR.
It tracks the STOXX Europe Whole Market Aerospace & Protection Index and contains solely European-listed corporations or American depositary receipts (ADRs) that generate at the least 50% of their income from aerospace and protection.
EUAD is full of prime European rivals together with Airbus, Rheinmetall, BAE Programs, Thales and Leonardo. Rolls-Royce can be amongst its holdings, which, along with its automotive legacy, is a significant producer of plane engines.
By June 30, the fund is up 78% yr to this point, pushed by sturdy inflows amid rising curiosity in Europe’s rearmament efforts.
Be taught extra about EUAD on the STOXX supplier website.
