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.

In the United States, defense spending could also see a significant increase. President Donald Trump recently proposed a massive $1.5 trillion defense budget for fiscal year 2027. If approved, the proposal would represent a substantial jump from the roughly $900 billion defense budget authorized for 2026. Other countries are also boosting military investments. Canada, for example, has committed approximately $81.8 billion over the next five years to strengthen the capabilities of the Canadian Armed Forces. 

From here, global defense spending could rise further, given intensifying conflicts in Russia and Ukraine, as well as increased security issues across Asia and parts of Africa.  In addition, NATO allies committed to investing 5% of Gross Domestic Product (GDP) annually in core defense requirements and defense- and security-related spending by 2035. They will allocate at least 3.5% of GDP annually based on the agreed definition of NATO defense expenditure by 2035 to resource core defense requirements and to meet the NATO Capability Targets,” as noted by NATO.

So, what’s the best way to trade it?

One way is to invest in this surge in defense spending is through defense stocks, such as Palantir Technologies (NASDAQ: PLTR), Lockheed Martin (NYSE: LMT), C3.ai (NYSE: AI), BigBear.ai (NASDAQ: BBAI), AeroVironment (NASDAQ: AVAV), and Kratos Defense & Security (NASDAQ: KTOS), to name a few.

Or, you can diversify with exchange-traded funds (ETFs), such as:

Global X Defense Tech ETF (SHLD): A Bet on AI and Defense Technology

With an expense ratio of 0.5%, the Global X Defense Tech ETF (NYSEARCA: SHLD) 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 aircraft for defense applications. Some of its 49 holdings include Lockheed Martin, RTX Corp., General Dynamics, Palantir Technologies, Northrop Grumman, and L3Harris.

U.S. Aerospace & Defense ETF (ITA): Exposure to Aerospace and Military Leaders

With an expense ratio of 0.38%, the U.S. Aerospace & Defense ETF (BATS: ITA) offers exposure to companies that manufacture commercial and military aircraft and other defense equipment. Some of its 41 holdings include GE Aerospace, RTX Corp., Boeing, Lockheed Martin, Northrop Grumman, L3Harris Technologies, General Dynamics, and Axon Enterprise.

SPDR S&P Aerospace & Defense ETF (XAR): Diversified Access to Defense Manufacturers

The SPDR S&P Aerospace & Defense ETF (NYSEARCA: XAR) 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.

Invesco Aerospace & Defense ETF (PPA): Broad Exposure to Defense and Space Innovation

The Invesco Aerospace & Defense ETF (NYSEARCA: PPA) tracks a market-cap-weighted index of US-listed stocks involved in the defense, military, homeland security and space industries. The PPA ETF has an expense ratio of 0.57%. Some of its top holdings include Lockheed Martin, RTX Corp., General Electric, Boeing, Northrop Grumman, and General Dynamics.

Why Defense Spending Could Become a Decade-Long Megatrend

Defense spending is one of the most powerful long-term investment themes in the market. From advanced AI-driven warfare systems to aerospace innovation and cybersecurity infrastructure, governments around the world are preparing for a new era of military modernization—and investors are paying close attention.

Whether through individual defense stocks or diversified ETFs, the sector offers multiple ways to gain exposure to what could become a multi-trillion-dollar growth opportunity over the next decade. While no investment is without risk, the sustained rise in global defense budgets, combined with increasing geopolitical uncertainty, could provide strong tailwinds for aerospace and defense companies well into the future. For traders and long-term investors alike, this may be one megatrend worth watching closely.