With tariff policy dominating the investment landscape and President Donald Trump looking for across-the-board budget cuts in early 2025, defense stocks haven’t escaped the carnage that’s chewed up Wall Street over the past several weeks. But as the raucous midday rally sparked by a 90-day pause on “reciprocal” tariffs (China excluded) on April 9 showed, anything can happen.
The MSCI World IMI Aerospace and Defense Index, composed of large- and mid-cap stocks from 23 developed-market countries, was down 2% in 2025 as of March 31, after rising 20% in 2024 before the tariff turmoil started.
[Sign up for stock news with our Invested newsletter.]
Meanwhile, the S&P Aerospace & Defense Select Industry Index was down 10.9% year to date as of April 8, with the bulk of those losses coming in the first week of April.
Yet defense stocks also skyrocketed in early April after reports that the White House would steer $1 trillion into the 2026 U.S. defense budget. Shares of key sector stocks like Lockheed Martin Corp. (ticker: LMT), RTX Corp. (RTX) and General Dynamics Corp. (GD) all rose in daily trading as on-the-fence buyers opted to get back into defense stocks on the news. (That $1 trillion figure is up from $951 billion in defense spending in fiscal 2025.)
With tariff hikes still in play, a trillion-dollar payday from Uncle Sam on the way, and potentially intensifying geopolitical conflicts on the horizon, defense industry exchange-traded funds, or ETFs, rather than individual stocks, might be the way to go. So which ETFs look ready to rise and shine through the rest of 2025? These industry names make our list of best defense ETFs:
| Defense ETF | Expense Ratio | Yield* |
| iShares US Aerospace & Defense ETF (ITA) | 0.40% | 0.5% |
| Invesco Aerospace & Defense ETF (PPA) | 0.57% | 0.5% |
| SPDR S&P Aerospace & Defense ETF (XAR) | 0.35% | 0.5% |
| Global X Defense Tech ETF (SHLD) | 0.50% | 0.6% |
| Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN) | 0.95% | 0.8%** |
| Ark Space Exploration & Innovation ETF (ARKX) | 0.75% | N/A |
*30-day SEC yield as of March 31. **Trailing-12-month yield.
iShares US Aerospace & Defense ETF (ITA)
This $5.6 billion fund is down 5.3% in 2025 but up an annualized 13.8% over the past five years. It offers an affordable 0.4% expense ratio and a 0.5% dividend yield. The fund, which tracks the Dow Jones US Select Aerospace & Defense Index, composed of U.S. stocks in the aerospace and defense industry, is top-heavy with sector names like GE Aerospace (GE
), RTX and Boeing Co. (BA). Those three stocks comprise nearly 50% of the fund, making it vulnerable to ongoing tariff machinations by the Trump administration.
For example, the aerospace industry is highly dependent on aluminum to build aircraft; about 80% of all aircraft are made from the commodity. Since Trump slapped aluminum imports (along with steel) with a 25% tariff rate in March, building aircraft has become substantially more expensive for aerospace companies, leading to a significant sell-off in the industry.
Not helping matters is a negative call by UBS on March 31 due to the U.S. Department of Government Efficiency’s demand for aerospace spending cuts. However, no specific cuts have been implemented yet, and with Trump leaning toward overall defense spending increases, the path is far from clear.
Invesco Aerospace & Defense ETF (PPA)
Another tariff victim, the Invesco Aerospace & Defense ETF, is down 7.5% year to date but did return 25.3% in 2024 and 18.4% in 2023. That suggests that all things being equal, and with a hefty defense budget in the works, the fund should stabilize and rise once the smoke clears from the current global trade wars. PPA charges a 0.57% expense ratio and pays a 0.5% 30-day SEC yield.
Yet PPA remains particularly vulnerable to continued tariff troubles, as about 93% of all holdings are tied to the industrial sector, which has taken a significant manufacturing-expense hit from rising tariffs.
On the upside, there had been rising global demand for defense industry stocks before the trade troubles. For instance, NATO members were expected to steer 2% of their gross domestic products to defense and national security, and the global defense market is expected to rise by 5.8% on a compound annual basis through 2028. That growth may be tabled for the duration of the tariff wars but should rebound quickly if trade negotiations produce a positive outcome.
SPDR S&P Aerospace & Defense ETF (XAR)
This 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%, although the fund is down 10.9% in 2025 due to tariff issues. XAR, which has $2.4 billion in assets, has an expense ratio of 0.35% and a dividend yield of 0.5%.
The fund is suitably diversified, with no single stock making up more than 4.4% of the fund’s holdings, and is stacked with familiar names like Northrop Grumman Corp. (NOC), Boeing and GE Aerospace. Like PPA, this SPDR ETF leans heavily into the industrial side of aerospace and defense, both of which sit on the front lines of the tariff battles. In fact, with these industries representing 100% of holdings, XAR may be the most vulnerable top-line defense industry ETF during the current trade and tariff crisis, so keep that in mind.
Global X Defense Tech ETF (SHLD)
The Global X Defense Tech ETF is among the top industry performers in 2025 and may be a good fit for investors seeking shelter from trade storms. The fund has returned 20.1% by net asset value in 2025, massively outperforming its category average of -20.8%. SHLD has also returned 34% over the past year against the S&P 500’s flat return. The fund has a 0.5% expense ratio and a 0.6% SEC yield.
The ETF has largely been insulated from trade troubles, as most of the U.S. tariff focus is on Canada, Mexico and China, at least to date. A fund like SHLD, which focuses on European defense stocks, should prosper as NATO nations boost defense spending and the euro landscape steers clear of global tariff conflicts.
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN)
At $168 million in assets, the Direxion fund clocks in as one of the smallest defense sector ETFs. It also has one of the higher expense ratios, at 0.95%, but does sport a tidy 0.8% dividend yield for shareholders.
The fund shares the woes of most of its defense sector peers, with a 22.2% year-to-date loss. Notably, DFEN did outperform in 2024 and 2023, with yearly returns of 27.6% and 24.7%, respectively. The root of the problem is the fund’s reliance on taking 3x leveraged long positions with stocks in the tariff-addled Dow Jones U.S. Select Aerospace & Defense Index.
While the entire defense industry is tied directly or indirectly to rising tariffs, there’s every reason to believe funds like DFEN will bounce back after the trade wars cease. Since 2020, global defense spending has risen by a 4.2% annual rate, four times faster than before COVID. What’s more, worldwide defense spending is expected to increase by 5% annually through 2030, according to the Stockholm International Peace Research Institute.
Ark Space Exploration & Innovation ETF (ARKX)
At $228 million, this space exploration and innovation fund is one of the lowest-asset funds on this list. It’s also down 18% year to date and 10% over the past seven days due primarily to tariff woes.
Yet, like most defense and aerospace stocks, ARKX has a strong performance story, with gains of 26.7% and 24.4% in 2024 and 2023, respectively. That sends investors a signal that when global trade issues settle down, defense and space exploration funds like ARKX should return to form and deliver solid results to shareholders.
For now, the fund’s largest positions are Kratos Defense & Security Solutions Inc. (KTOS) (10%), Iridium Communications Inc. (IRDM) (9%) and Rocket Lab USA (RKLB) (7%). AeroVironment Inc. (AVAV) (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 prioritizes space research and exploration. The company has also begun recording profits, has a growing two-year dividend history, and is expected to generate single-digit revenue growth going forward.
More from U.S. News
10 Best-Performing ETFs of 2025
7 Mid-Cap Index ETFs to Buy Right Now
6 Best Defense ETF Picks for 2025 originally appeared on usnews.com
Update 04/09/25: This story was previously published at an earlier date and has been updated with new information.
