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    Home»ETFs»Time to Tap Market-Beating Defense ETFs Ahead of Q3 Earnings?
    ETFs

    Time to Tap Market-Beating Defense ETFs Ahead of Q3 Earnings?

    September 29, 2025


    Intensifying geopolitical tensions worldwide have triggered a fundamental shift in global priorities over the past decade, decisively favoring an expansion in defense budgets of nations, both developed and emerging. This heightened state of global insecurity has directly translated into an enormous surge for Defense Exchange-Traded Funds (ETFs) this year, with many of these funds significantly outperforming the broader market, as in the S&P 500’s year-to-date return of 13.8%.

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    The exceptional returns of Defense ETFs are primarily driven by surging global defense spending. Geopolitical fragmentation, particularly ongoing conflicts and heightened tensions in regions like Eastern Europe and the Middle East, has been compelling nations to boost their military capabilities. For instance, in June 2025, the North Atlantic Treaty Organization (“NATO”) members agreed to a new target to spend 5% of their GDP on defense and security by 2035, marking a significant increase from the previous benchmark of 2%, which was set in 2014.

    On the other hand, non-NATO member nations, such as India and China, which have strengthened their position in the global defense map in recent years, are also racing to expand their defense arsenals. While India’s defense budget for 2025 saw a 9.5% year-over-year increase, China’s rose 7.2%.

    Such enormous defense spending provisions have paved the way for major defense contractors — the core holding companies of defense ETFs — to secure massive, long-term government contracts for everything from traditional combat aircraft and missile systems to cutting-edge defense technologies like AI, cybersecurity, and drone platforms. This high-demand, non-cyclical revenue stream offers a level of stability and predictability that is insulated from general economic slowdowns, allowing the defense ETFs to outperform the broader market, which has been subject to recent volatility.

    As we head toward the third-quarter earnings cycle for this year, the aforementioned tailwinds can be expected to have bolstered the quarterly performance of Defense ETFs.

    To this end, we focus on the Zacks Earnings Trend report, issued on Sept. 24, 2025. This shows that the Aerospace sector, housing the defense stocks, is expected to report earnings growth of 249%, while total S&P 500 earnings for the July-September quarter are expected to be up +5.2% from last year’s level.

    Given the robust numbers expected from the defense companies during the upcoming third-quarter earnings season, these five defense ETFs offer diversified exposure to the structural growth drivers outlined above:

    Global X Defense Tech ETF (SHLD)

    This fund includes global defense technology companies, with its top five holdings constituting major defense technologies contractors like Palantir (8.92%), Rheinmetall (8.02%), RTX Corp. (7.64%), BAE Systems (7.18%) and Lockheed Martin (7.06%).

    SHLD has gained 82.3% year to date. The fund charges 50 bps in fees.

    SPDR S&P Aerospace & Defense ETF (XAR)

    This fund includes U.S.-listed aerospace and defense companies, with its top five holdings in Kratos Defense & Security Solutions (4.29%), AeroVironment (4.09%), Archer Aviation (3.79%), BWX Technologies (3.55%) and L3Harris Technologies (3.51%), all of which are involved in defense technology.

    XAR has gained 38.9% year to date. The fund charges 35 bps in fees.

    iShares U.S. Aerospace & Defense ETF (ITA)

    This fund includes U.S. companies that manufacture commercial and military aircraft and other defense equipment. Its top five holdings include GE Aerospace (21.87%), RTX Corp. (14.91%), Boeing (8.17%), L3Harris Technologies (4.61%), and Lockheed Martin (4.59%), which are involved in defense technology innovation.

    ITA has gained 41.5% year to date. The fund charges 38 bps in fees.

    Invesco Aerospace & Defense ETF (PPA)

    This fund includes companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Its top five holdings include core-defense contractors — RTX Corp. (7.72%), Boeing (7.72%), Lockheed Martin (7.02%) and Northrop Grumman (5.26).

    PPA has gained 33% year to date. It charges 57 bps in fees.

    Themes Transatlantic Defense ETF (NATO)

    This fund supports aerospace and defense companies headquartered in NATO member countries. Its top five holdings include aerospace-defense companies — GE Aerospace (8.82%), RTX Corp.(8.41%), Boeing (7.31%), and Airbus Group (6.20%).

    NATO has gained 51.6% year to date. It charges 35 bps in fees.

    Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

    Global X Defense Tech ETF (SHLD): ETF Research Reports

    iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports

    Invesco Aerospace & Defense ETF (PPA): ETF Research Reports

    SPDR S&P Aerospace & Defense ETF (XAR): ETF Research Reports

    Themes Transatlantic Defense ETF (NATO): ETF Research Reports

    This article originally published on Zacks Investment Research (zacks.com).

    Zacks Investment Research



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