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The S&P 500 Index had its second consecutive down week, losing nearly 1%. It was a good week for Energy as measured by XLE, Defense as measured by ITA, Utilities as measured by XLU but a down week for the QQQ ETF and some of the index's largest components. The war between Israel and Iran continues to escalate and investors seem uncertain as to whether the US will insinuate itself into the conflict.  Beyond this uncertainty, investors who were concerned, the market had been on too much of a run not sufficiently supported by stock market fundamentals to support such lofty valuations. Investors hate spikes in uncertainty.

Many defense stocks and ETFs were in positive territory in anticipation that demand could skyrocket. Well-known stalwarts of the defense industry such as RTX Corp., Lockheed Martin, General Dynamics, Northop Grumman, and L3Harris enjoyed upturns.  This week, we take a closer look at the defense industry.  

Currently, ETFdb.com, a VettaFI company, classifies 6 ETFs as Aerospace / Defense Industry ETFs.  They are as follows:

iShares U.S. Aerospace & Defense ETF (ITA): This ETF tracks a market-cap-weighted index of U.S. aerospace and defense stocks. Due to the industry's nature, the fund is highly concentrated and non-diversified, despite “capping” holdings for diversification purposes.

Invesco Aerospace & Defense ETF (PPA): This ETF seeks to track the SPADE® Defense Index, which includes companies involved in US defense, homeland security, and aerospace operations. Like ITA, it uses a modified market-cap-weighting methodology

SPDR S&P Aerospace & Defense ETF (XAR): This ETF aims to mirror the performance of the S&P Aerospace & Defense Select Industry Index by investing in aerospace and defense stocks with a target allocation across large, mid, and small-cap companies using a modified equal-weighting methodology. The selection set is the S&P 1500 Total US Market Index.

Global X Defense Tech ETF (SHLD): This ETF tracks an index of U.S.-listed companies innovating in future security, such as cybersecurity, advanced border security, and military technologies like robotics, drones, and space technology. It invests at least 80% of its assets in the securities of its underlying index.

First Trust Indxx Aerospace & Defense ETF (MISL): This ETF aims to match the performance of the Indxx US Aerospace & Defense Index, which focuses on US companies in both advanced and traditional aerospace and defense.

SPDR S&P Kensho Future Security ETF (FITE): This ETF seeks to track the performance of the S&P Kensho Future Security Index. This index includes U.S.-listed companies involved in future security areas like cybersecurity, advanced border security, and military applications such as robotics and space technology.

This chart gives a quick rundown of current attractiveness, size, price performance and dividend yield of these ETFs. SPLG, the S&P 500 ETF with the lowest expense ratio, is used to provide a benchmark for the aerospace/defense industry ETFs’ returns.

*Data Table Exported From Search Using Professional Tools from

The bold print indicates the ETF that performed best in a particular category.  It is immediately apparent that SHLD, the Global X Defense Tech ETF, led all of the other ETFs in performance on Friday June 13 in the wake of the Israeli initial attack on Iran’s nuclear weapons. SHLD gained almost 2% on a day, the S&P 500 Index was down more than 1%.  Three of the other five ETFs were also up on the day. MISL from First Trust also had a healthy 1%+ gain.  The exceptions were equally weighted XAR and FITE. The latter is as much as a security technology portfolio as it is a defense portfolio.

SHLD outperformed  everything on this table in 2025 with a staggering 58.6% year-to-date.  It also dwarfs the competition in the shorter periods. However, it has existed for a bit less than three years, so it has not been as time-tested as the other ETFs in this study.  Also, its portfolio holdings include more than 50% of its assets invested in non-US securities.  For example, the largest holding at nearly 9% of the ETF’s portfolio is Rheinmetall AG, a leading global provider of military vehicles, weapons, ammunition, and air defense systems. Two other foreign stocks that have large allocations are France-based aerospace giant Thales S. A. and Italy-based Leonardo S .p. a.  Many American stalwarts are also in SHLD including Palantir (PLTR), RTX Corp. (RTX), Northrop Grumman (NOC) and General Dynamics (GD). The last three are also held by ITA and XAR.  The reason I delve into SHLD so deeply beyond its performance is that there is no ValuEngine report available on it because so much of its portfolio is in stocks we do not cover although in many cases, we may cover an ADR of the same company.  This ETF has probably latched onto two current market themes.  The first is that thus far, this Administration has seen a persistent weakening in the dollar vs. other currencies. That benefits US holders of foreign stock and/or their ADRs.  The second reason is that many countries, especially in Europe, are threatened by the President’s comments about potentially pulling out of NATO.  The implication is that our European allies need to pour a lot more resources into their own defense industries and the companies that serve it.  Such investments may contribute to foreign defense technology companies outpacing their US counterparts.  Investors interested in these themes may wish to do their own homework on SHLD.

Back to the ETFs we do rate that hold mostly US stocks, the 5-year performance leader, outpacing the S&P 500 for four of the five periods measured, everything but one-month, is Invesco Aerospace and Defense ETF (PPA). It is the second largest of the six ETFs in the study in terms of assets under management (AUM). It surpassed the S&P 500 in 3 of the five historical periods. Our predictive models predict these ETFs to generally keep pace with the market which is why almost all of them are ranked 3 (Hold) with equally weighted XAR being rated 2 (Sell).  That said, XAR does have 4 individual stocks rated 4 (Buy) in its top 10 holdings.  These include: Rocket Lab (RKLB), Howmet Aerospace (HWMT), Kratos Defense (KTOS) and GE Aerospace (GE). Even more outstanding to our eyes is that the top nine holdings of FITE, more based on defense technology and security than traditional aerospace, are all rated as Buy or Strong Buy by ValuEngine.  Of note in this list are: CloudFare (NET), Planet Labs PBC (PL), Rubrik (RBRK), Zscaler (ZS) and Broadcom (AVGO).

One sour note is that ETF providers consider these indexes to be non-standard specialty items that require more attention than sector indexes.  Consequently, these are all a lot more expensive than the 0,09% expense ratio investors pay for the 11 Select Sector SPDRs from State Street.  The range of ratios here is from 0.35% to 0.60%.  As usual, if you get alpha, homing in on this special area within the Industrial Sector may turn out to be worth it but there’s never a guarantee of getting the value you are paying for.

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