Contributor, Benzinga
July 14, 2023

Invest in the best defense ETFs today with Interactive Brokers or Robinhood.

Exchange-traded funds (ETFs) give you instant diversification. Instead of researching dozens of stocks, you can buy shares of an ETF and get exposure to numerous stocks. While ETFs can speed up portfolio diversification, a diverse range of ETFs are available. Investors can find ETFs that focus on investments within a certain sector, market cap range or theme, among other factors. Defense ETFs are one of the many funds you can allocate your cash toward for diversification. These funds invest in defense sectors like aerospace and cybersecurity.

6 Best Defense ETFs

Wondering which defense ETFs to start with? These are six of the best defense ETFs available. 

1. iShares U.S. Aerospace & Defense ETF (BATS: ITA)

The iShares U.S. Aerospace & Defense ETF gives investors exposure to U.S. companies that produce defense equipment and manufacture commercial and military aircraft. The fund has generated an annualized return of 12.37% over the past 10 years. ITA has $5.8 billion in net assets and has 36 holdings and a 0.98% 12-month trailing dividend yield. The ETF’s top three positions are Raytheon Technologies (20.15%), Boeing (17.40%) and Lockheed Martin (6.39%). The expense ratio for ITA is 0.39%.

2. Invesco Aerospace & Defense ETF (NYSEARCA: PPA)

The Invesco Aerospace & Defense ETF mirrors the SPADE Defense Index. The fund has produced an annualized return of 14.89% over the past 10 years and focuses on large-cap stocks. The top three holdings of PPA are Boeing (6.65%), Lockheed Martin (6.35%) and Raytheon Technologies (6.32%). The fund has a 0.58% expense ratio.

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

The SPDR S&P Aerospace & Defense ETF has over $1.5 billion in assets under management and has 32 holdings. The fund has generated an annualized return of 13.50% over the past 10 years. The fund uses a modified equal-weight system, so several shares make up 4% to 4.5% of the fund’s total assets. The top three holdings are Transdigm (4.42%), BWX Technologies (4.31%) and Howmet Aerospace (4.28%). The fund has a 0.35% expense ratio.

4. Fidelity Select Defense and Aerospace Portfolio (FSDAX)

The Fidelity Select Defense and Aerospace Portfolio is a mutual fund that focuses on companies involved with the research, production or sale of products and services in the defense and aerospace industries. The fund has generated an annualized return of 11.18% over the past 10 years and has an expense ratio of 0.75%. Over 90% of the fund’s assets are invested in domestic equities, and the top three holdings are Boeing (19.19%), Lockheed Martin (15.78%) and Raytheon Technologies (12.88%).

5. SPDR S&P Kensho Future Security ETF (NYSEARCA: FITE)

The SPDR S&P Kensho Future Security ETF holds over $30 billion in assets spread across stocks that tackle the future of security. Some of the stocks focus on military applications, while others address cybersecurity and similar areas. The fund has 64 holdings, with the top three stocks being Rocket Lab (2.15%), VMware (1.97%) and Fortinet (1.93%). The annualized return over five years is 9.23%. The fund has been around since December 2017, so 10-year annualized returns are not yet available. The fund has a 0.45% expense ratio.

6. First Trust Indxx Aerospace & Defense ETF (NYSEARCA: MISL)

The First Trust Indxx Aerospace & Defense ETF holds companies that address traditional and advanced components of aerospace and defense. This fund is relatively new and had its inception on Oct. 25, 2022. The year-to-date return currently stands at 4.41%. The index is rebalanced quarterly and reconstituted every six months. The fund’s top three holdings are Boeing (8.37%), Northrop Grumman (7.53%) and a tie between Lockheed Martin and Raytheon Technologies (both at 7.44%). The fund has a 0.60% expense ratio.

What is a Defense ETF?

A defense ETF invests in defense companies like aerospace and cybersecurity. These companies tend to provide their services to governments. Some of them also serve businesses and consumers. A defense ETF gives you instant diversification in this sector, so you don’t have to go stock hunting.

Why Invest in Defense ETFs?

Defense ETFs don’t produce returns as flashy as growth stocks. However, these funds have reliable, long-term customers, which makes revenue and earnings more predictable. Defense ETFs usually weather economic downturns better because of the vitality of defense companies’ services.

Where to Invest in the Best Defense ETFs

Investors can choose from many brokerage firms to invest in Defense ETFs. These are some of the top brokers available. 

Diversifying into Defense ETFs

Defense ETFs offer more stability during economic uncertainty and can still perform well during bullish markets. Instead of picking individual defense stocks, you can consider a defense ETF for instant portfolio diversification. ETFs make it easier for investors to get more exposure to a wider range of assets.

Frequently Asked Questions 

Q

Is there an ETF for defense stocks?

A

Yes. Investors can choose from several ETFs that focus on defense stocks.

Q

Does Vanguard have a defense ETF?

A

The closest thing Vanguard has to a defense ETF is the Vanguard Industrials Index Fund (VIS). The VIS ETF focuses on industrials, but it is largely composed of logistics and transportation companies. Aerospace & Defense is the fund’s largest sector, and it makes up 16.80% of the fund’s total assets.

Q

When do ETFs trade?

A

ETFs trade throughout market hours. These funds experience price fluctuations throughout each trading session.

Best Defense ETF Methodology

The best defense ETF methodology involves reviewing the asset concentration and performances of several funds. The list contains a mix of established ETFs and funds that have only been around for a few years. The list also focused on funds with holdings in aerospace and security.

About Marc Guberti

Marc Guberti is an investing writer passionate about helping people learn more about money management, investing and finance. He has more than 10 years of writing experience focused on finance and digital marketing. His work has been published in U.S. News & World Report, USA Today, InvestorPlace and other publications.