Geopolitical tensions have brought a lot of uncertainty to the markets, but investors know one thing is for certain: Those…
Geopolitical tensions have brought a lot of uncertainty to the markets, but investors know one thing is for certain: Those tensions will cause countries to put more money into their defense systems and militaries.
When a significant amount of capital flows into any industry, it presents an opportunity for investors to boost their profits. The ongoing conflicts in Ukraine and the Middle East have prompted NATO countries to raise their military budgets.
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That commitment was renewed once more at the 2025 NATO Summit. Allies committed to invest 5% of gross domestic product, or GDP, each year on “core defense requirements and defense- and security-related spending by 2035.”
All of that money has to go to certain companies that produce military equipment and defense systems. However, military spending isn’t just going toward weapons of war. Strategic cyberattacks can be just as lethal as losses on the battlefield, and large-scale cyberattacks can cripple countries and economies.
As global military spending goes up, these defense ETFs should rally higher:
— Invesco Aerospace & Defense ETF (ticker: PPA)
— SPDR S&P Aerospace & Defense ETF (XAR)
— iShares US Aerospace & Defense ETF (ITA)
— Global X Defense Tech ETF (SHLD)
— SPDR S&P Kensho Future Security ETF (FITE)
— Select STOXX Europe Aerospace & Defense ETF (EUAD)
— Themes Transatlantic Defense ETF (NATO)
Invesco Aerospace & Defense ETF (PPA)
The Invesco Aerospace & Defense ETF aims to mirror the Spade Defense Index and prioritizes companies that support U.S. defense, homeland security and aerospace operations. The fund has been a steady performer with an annualized 17.2% return over the past decade.
However, returns have been picking up recently. Five-year annualized returns stand at 21%, three-year returns are at 25.4%, and the fund has produced a 31.9% return over the past year. Boeing Co. (BA) has led the way, making up 8.4% of the fund’s total assets. GE Aerospace (GE) and RTX Corp. (RTX) are the next two biggest holdings. PPA allocates 57% of its capital to the top 10 assets.
PPA has a 0.57% expense ratio and $6.1 billion in total assets. It pays a 0.4% 30-day SEC yield. The fund has a heavy concentration of large-cap stocks, especially large-cap value stocks. Only about 13% of the fund’s total assets are in small-cap stocks.
SPDR S&P Aerospace & Defense ETF (XAR)
The SPDR S&P Aerospace & Defense ETF uses the S&P Aerospace & Defense Select Industry Index as a benchmark and has delighted many investors since it was launched on Sept. 28, 2011. It has an annualized 16.5% return over the past decade and has produced an impressive 30.6% year-to-date return.
The fund has a 0.35% expense ratio and a small 0.2% 30-day SEC yield. The stock’s top three holdings are Kratos Defense & Security Solutions (KTOS), Rocket Lab Corp. (RKLB) and AeroVironment Inc. (AVAV). The top two stocks have been massive outperformers, up by 208% and 549% over the past year, respectively.
XAR consists of 38 equity holdings and allocates 41% of its assets to the top 10. Growth stocks make up almost 60% of assets, and mid-cap growth stocks represent about 30%. The strong focus on growth is one of the reasons XAR has been able to outperform the stock market for several years.
iShares US Aerospace & Defense ETF (ITA)
The iShares US Aerospace & Defense ETF offers exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment. The focus on domestic stocks has been quite rewarding for investors, based on its 14.8% annualized return over the past decade. It’s also up by 34.8% year to date.
ITA comes with a 0.38% expense ratio and pours its capital into various large-cap stocks, which contribute to its 0.4% 30-day SEC yield.
ITA has 37 equity holdings, with its top three stocks being GE Aerospace, RTX and Boeing. These three stocks make up more than 40% of its assets, and the fund also puts 76% of its capital into its top 10 holdings. That makes it one of the most top-heavy ETFs in the stock market.
Rocket Lab and Kratos Defense & Security Solutions are two other notable stocks in ITA that have soared more than 100% over the past year, but each makes up less than 2% of the fund’s total holdings.
Global X Defense Tech ETF (SHLD)
The Global X Defense Tech ETF invests in companies that will benefit from future military tech. Cybersecurity firms, industrials and artificial intelligence leaders are included in this ETF. It has a 0.5% expense ratio that is offset by a 30-day SEC yield of 0.5%. It has $3.5 billion in net assets that are spread across 42 holdings.
The fund is pretty new. It was launched on Sept. 11, 2023, but even though it’s been around for about two years, it has already established itself as a leading defense ETF. The fund has soared 65.9% year to date under the management of Sandy Lu and team. The strong surge can be partially explained by the performance of Palantir Technologies Inc. (PLTR), which is the fund’s top holding. It makes up almost 10% of the fund’s total assets, and the top 10 stocks make up 62% of assets.
Large-cap stocks represent more than 70% of the fund, with large-cap growth stocks making up nearly half of the fund’s positions. A focus on growth, and Palantir in particular, has helped SHLD outperform the stock market.
SPDR S&P Kensho Future Security ETF (FITE)
The SPDR S&P Kensho Future Security ETF gives investors exposure to innovative military tech companies that are tapping into future battlefields like cybersecurity and space technology. Investors who believe the future of the military will be robots and drones instead of tanks and aircraft may want to give this fund a closer look.
FITE has produced an annualized 15.8% return over the past five years and has rallied by 29.9% over the past year. It has a 0.45% expense ratio. While most of the funds on this list have prioritized large-cap stocks, FITE pours more than half of its assets into small-cap stocks. Growth stocks are also heavily represented in the fund.
The fund has 73 holdings and allocates only 20% of its capital to its top 10 holdings, adding to its diversification. Kratos and Rocket Lab are once again in the top three holdings of this fund.
Select STOXX Europe Aerospace & Defense ETF (EUAD)
Investors who want to diversify into European defense stocks may want to give EUAD a closer look. EUAD is listed on the Cboe BZX Exchange in the U.S. The Select STOXX Europe Aerospace & Defense ETF only has 15 holdings, so it’s not as diversified as most defense ETFs. And the concentration is thick: The top 10 holdings make up 94% of assets.
EUAD has a 0.5% expense ratio and a superb 72.5% year-to-date return. The fund was launched on Oct. 21, 2024, so there isn’t much historical data to gauge its long-term performance. However, it is off to a great start and offers exclusive exposure to European defense companies. Airbus SE (OTC:EADSY) is the top holding of this fund.
This distinction could be even more valuable if European countries ramp up their military investments due to uncertainty surrounding the Trump administration’s commitment to NATO.
Themes Transatlantic Defense ETF (NATO)
The Themes Transatlantic Defense ETF, not-so-subtly using the NATO ticker symbol, prioritizes aerospace and defense companies in NATO countries. The fund has a reasonable 0.35% expense ratio and pays a 0.7% 30-day SEC yield.
GE Aerospace, RTX and Boeing are the fund’s top three holdings, and they make up close to one-quarter of the fund’s total assets. The NATO ETF has 80 holdings, and its top 10 positions make up 61% of assets. Large-cap stocks represent almost 80% of holdings.
This approach has produced a 42.4% year-to-date return. Just like EUAD, this fund is relatively new. It’s only been around since Oct. 11, 2024. However, its portfolio composition and recent returns suggest it can be a long-term winner if military spending continues to rise.
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6 Best Defense ETFs to Buy in 2025 originally appeared on usnews.com
Update 08/26/25: This story was previously published at an earlier date and has been updated with new information.