U.S. military defense is at a flashpoint right now as political power has shifted to the right, with the Republican Party controlling the White House, the U.S. Senate and the House of Representatives.
That should bode well for the military defense industry, which actually gained more funding under the President Joe Biden’s administration ($895 billion in base national security funding for fiscal year 2025) than it did under the first administration of President-elect Donald Trump.
While Trump has indicated he wants the U.S. out of the Russia-Ukraine war, he does support major military spending in key areas like shipbuilding, missile defense, recruiting, and increased production of F-35 and B-21 bombers, among other manufacturing areas. Defense spending under the new Trump administration won’t be reined in by the Budget Control Act, which set caps on discretionary spending but expired in 2021.
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Factor in the ongoing war in Ukraine; tensions between China and Taiwan; and conflicts between Israel and Iran, Hamas and Hezbollah, and the U.S. government may have to hike defense industry investment even more in the coming years, expanding company earnings. With a new U.S. sheriff in town and with potentially intensifying geopolitical conflicts on the horizon, which defense industry exchange-traded funds, or ETFs, look ready to rise and shine in 2025? These industry names make our new list of best defense ETFs:
| Defense ETF | Expense Ratio | Yield* |
| iShares U.S. Aerospace & Defense ETF (ticker: ITA) | 0.40% | 0.7% |
| Invesco Aerospace & Defense ETF (PPA) | 0.57% | 0.4% |
| SPDR S&P Aerospace & Defense ETF (XAR) | 0.35% | 0.4% |
| Global X Defense Tech ETF (SHLD) | 0.50% | 0.7% |
| Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN) | 0.97% | 1%** |
| Ark Space Exploration & Innovation ETF (ARKX) | 0.75% | N/A |
*30-day SEC yield as of Jan. 9.
**Trailing-12-month yield as of Jan. 9.
iShares U.S. Aerospace & Defense ETF (ITA)
This $6.2 billion fund gained 16.6% in 2024, with a 0.4% expense ratio and a 0.7% dividend yield. The fund holds some familiar defense industry names like Lockheed Martin Corp. (LMT), Boeing Co. (BA) and General Dynamics Corp. (GD) in prominent positions.
General Dynamics is a particularly solid fund play, as shipbuilding should be a big U.S. Department of Defense priority over the next decade. General Dynamics is one of the largest shipbuilders in the world, and the U.S. Navy’s 2025 shipbuilding budget request is $32.4 billion, a figure that’s significantly higher than the $12.4 billion request only 10 years ago.
Invesco Aerospace & Defense ETF (PPA)
Another large entrant in the defense ETF field, with $4.7 billion in assets, the Invesco Aerospace & Defense ETF rose 26.5% in 2024, and has a 0.57% expense ratio and a 0.4% dividend yield. PPA should be another defense industry ETF that benefits from what analysts are calling the “Trump bump” in 2025, as defense spending rises in the new year. For instance, NATO members are expected to steer 2% of their gross domestic product budgets to defense and national security, and the global defense market is expected to rise by 5.8% on a compound annual basis through 2028.
The fund also has some major sector brands on board, such as Boeing, Lockheed and Northrop Grumman Corp. (NOC). The latter is a good pick right now. On Dec. 17, Northrop announced a $3 billion buyback of NOC shares, on top of the $1.2 billion repurchase program already planned. Company executives are particularly bullish on the company’s work in the satellite communication space, a market that’s expected to grow to $110.7 billion by 2033.
SPDR S&P Aerospace & Defense ETF (XAR)
This $2.7 billion ETF looks to mirror the performance of the S&P Aerospace & Defense Select Industry Index. In 2024, the fund did a good job of that, rising 23.3%.
XAR has an expense ratio of 0.35% and a dividend yield of 0.4%. The top five stocks in the fund include Rocket Lab USA Inc. (RKLB), AeroVironment Inc. (AVAV), Boeing, TransDigm Group (TDG) and GE Aerospace (GE). Howmet Aerospace Inc. (HWM) and Woodward Inc. (WWD) are also in the top 10 holdings, which comprise 45% of the fund’s assets.
Howmet stands out as a good XAR fund pick. Shares are up for the aerospace engineering products company largely due to robust financial performance. In November, Howmet reported an increase in third-quarter commercial aerospace sales of 17% year over year, helping to push total sales over $1.8 billion. Adjusted earnings per share hit 71 cents for the quarter, beating estimates around 65 cents.
Analysts are lining up to back the stock, with Bernstein recently holding its “buy” rating and boosting its target price to $138, and Wells Fargo issuing its own “buy” call on HWM with a higher target of $132 per share. HWM shares closed at $115.05 on Jan. 9.
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Global X Defense Tech ETF (SHLD)
This $663 million ETF comes with a 0.5% expense ratio and a 0.7% yield. Fund managers mainly seek to track the Global X Defense Tech Index, and the ETF finished 2024 with a 35% return.
The top three holdings are big defense industry names: Palantir Technologies Inc. (PLTR), RTX Corp. (RTX) and Northrop Grumman make up about 25% of the fund. Palantir went on a heater in 2024, and its one-year return is 309.3%, with a 64.6% return in the past three months. The Denver-based software company is taking the big defense companies head-on with its recently announced alliance with dronemaker Anduril to bid on major government defense contracts. It expects to include other big technology names like SpaceX and OpenAI in that alliance.
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN)
This smaller $167 million defense industry ETF has a relatively high 0.97% expense ratio and a decent 1% dividend yield. The fund performed well in 2024, rising 27.6%. However, it has proven volatile in the past decade, with annual returns of 95.1% in 2019 and -70.3% in 2020, for example, though returns have largely stabilized in the past three years following the pandemic.
The fund holds 9.8% of its assets in Dreyfus Government Cash Management Institutional Shares (DGCXX), but it also holds big defense stocks like GE Aerospace, Lockheed Martin and Boeing.
One interesting DFEN fund play is TransDigm, a Cleveland-based aircraft parts manufacturer. TDG had a banner year in 2024, and it has a one-year return of 36.1%. The company is a big player in the global aerospace market, which is expected to grow to $792 billion by 2034, with a compound annual growth rate of 7.8% annually over the next 10 years.
In the past year, TransDigm has also announced several significant buyouts, including acquiring SEI Industries, Raptor Scientific, and the components and subsystems business of Communications & Power Industries. Those purchases should create new aerospace market opportunities, grow the company’s brand and help it rise above the competition, which are all characteristics of a winning stock.
Ark Space Exploration & Innovation ETF (ARKX)
This space exploration and innovation fund is looking ahead to new frontiers in space travel, and it also holds some popular defense stocks. The fund holds about 30 equities, has $298 million in assets under management and returned 26.7% in 2024. It comes with a relatively high expense ratio of 0.75%.
The fund’s largest positions are in Rocket Lab USA (10%), Kratos Defense & Security Solutions Inc. (KTOS) (9%) and Iridium Communications Inc. (IRDM) (8%). AeroVironment (5%) is also in the top 10 holdings. Kratos and AeroVironment are top performers in the drone space; the former works closely with U.S. defense and intelligence agencies via its Kratos Government Solutions and Unmanned Systems segments, and the latter recently confirmed a $990 million deal with the U.S. Army involving the company’s Switchblade guided bomb technology.
Iridium, a global satellite communications services and products company, also has close ties to the U.S. government, which is prioritizing space research and exploration. The company posted a 5% service revenue gain in the most recent quarter and raised its full-year outlook in late 2024.
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