Defense stocks and aerospace ETFs are gaining renewed attention as military spending accelerates around the globe. With rising geopolitical tensions, growing NATO commitments, and increased investments in artificial intelligence, cybersecurity, drones, missile defense, and advanced military technologies, analysts expect defense spending to remain one of the strongest long-term growth themes of the decade.
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In fact, global military expenditures are already approaching record levels, creating potentially significant opportunities for investors seeking exposure to the defense sector. For those looking to capitalize on this trillion-dollar trend, several defense-focused ETFs offer diversified exposure to some of the world’s leading aerospace and defense companies.
So, what’s the best way to trade it?
One way is to invest in defense stocks, such as Palantir Technologies, Lockheed Martin, C3.ai, BigBear.ai, AeroVironment, and Kratos Defense & Security, to name a few.
Or, you can diversify with exchange traded funds (ETFs), such as:
A Play on AI, Cybersecurity, and Defense Technology
Global X Defense Tech ETF (NYSEARCA: SHLD)
With an expense ratio of 0.5%, the SHLD ETF invests in companies positioned to benefit from the increased adoption and utilization of defense technology. This includes companies that build and manage cybersecurity systems, utilize artificial intelligence and big data, and build advanced military systems and hardware such as robotics, fuel systems, and aircrafts for defense applications. Some of its 49 holdings include Lockheed Martin, RTX Corp., General Dynamics, Palantir Technologies, Northrop Grumman, and L3Harris, to name a few.
Investing in Industry Leaders
U.S. Aerospace & Defense ETF (BATS: ITA)
With an expense ratio of 0.38%, the iShares U.S. Aerospace & Defense ETF (ITA) provides investors with targeted exposure to leading companies involved in the design, manufacture, and support of commercial aircraft, military aircraft, defense systems, and related technologies.
The fund is heavily weighted toward some of the largest and most established names in the aerospace and defense industry, making it a popular choice for investors looking to benefit from rising military spending and growing demand for advanced defense capabilities.
Among its holdings are GE Aerospace, RTX Corp., Boeing, Lockheed Martin, Northrop Grumman, L3Harris Technologies, General Dynamics, and Axon Enterprise. The ETF also offers exposure to key growth areas, including missile defense systems, military communications, intelligence technologies, aerospace engineering, and next-generation security solutions.
Broad Exposure Across the Defense Industry
SPDR S&P Aerospace & Defense ETF (NYSEARCA: XAR)
The SPDR S&P Aerospace & Defense ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Aerospace & Defense Select Industry Index. The XAR ETF has an expense ratio of 0.35%. Some of its top holdings include Lockheed Martin, Northrop Grumman, Howmet Aerospace, L3Harris Technologies, Carpenter Technology, and Curtis-Wright Corp.
Diversified Access to Aerospace and Defense Companies
Power Shares Aerospace & Defense ETF (NYSEARCA: PPA)
The Invesco Aerospace & Defense ETF tracks a market-cap-weighted index of U.S.-listed companies involved in the aerospace, defense, military, homeland security, and space industries. With an expense ratio of 0.57%, the ETF provides investors with diversified exposure to some of the most important companies benefiting from rising global defense budgets and increased government spending on national security. Its portfolio includes leading defense contractors, aerospace manufacturers, and technology firms that support military modernization efforts.
Some of its top holdings include Lockheed Martin, RTX Corp., GE Aerospace, Boeing, Northrop Grumman, and General Dynamics. The fund also offers exposure to emerging themes such as missile defense, advanced aircraft systems, space technologies, cybersecurity, and next-generation military equipment, making it an attractive option for investors seeking broad exposure to the growing defense sector.
Why Defense ETFs May Be Worth Watching
The bottom line is that defense spending appears poised to remain on a long-term upward trajectory. Between rising geopolitical tensions, NATO’s commitment to higher military expenditures, modernization initiatives, and growing investments in artificial intelligence, cybersecurity, drones, and advanced weapons systems, defense contractors could see strong demand for years to come. While individual defense stocks can offer significant upside, investors seeking broader exposure and reduced company-specific risk may find defense-focused ETFs to be an attractive way to participate in what could become one of the decade’s largest and most durable investment trends.
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