Geopolitical tensions have brought a lot of uncertainty to the markets, but investors know one thing for certain: Those tensions will cause countries to put more money into their defense systems and militaries.
When a significant amount of capital flows into any industry, it presents an opportunity for investors. The ongoing conflicts surrounding Venezuela, Ukraine and the Middle East have prompted NATO countries to raise their military and infrastructure security budgets. NATO countries have committed to spending 5% of their gross domestic product, or GDP, each year on core defense by 2035. As their economies grow, military spending will also go up.
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The U.S. Congress approved $900.6 billion for defense spending in 2026, which will pump cash into some of America’s strongest defense companies and tech winners.
Defense exchange-traded funds, or ETFs, offer investors exposure to reliable companies and emerging leaders without single-stock exposure. All of the funds on this list outperformed the S&P 500 in 2025, and repeat performances are viable amid geopolitical tensions heading into 2026:
| ETF | Expense Ratio | Total Assets |
| Invesco Aerospace & Defense ETF (ticker: PPA) | 0.58% | $7.6 billion |
| SPDR S&P Aerospace & Defense ETF (XAR) | 0.35% | $5.6 billion |
| iShares U.S. Aerospace & Defense ETF (ITA) | 0.38% | $14.3 billion |
| Global X Defense Tech ETF (SHLD) | 0.50% | $6.2 billion |
| SPDR S&P Kensho Future Security ETF (FITE) | 0.45% | $108.3 million |
| Select STOXX Europe Aerospace & Defense ETF (EUAD) | 0.50% | $1.3 billion |
| Themes Transatlantic Defense ETF (NATO) | 0.35% | $65.5 million |
Invesco Aerospace & Defense ETF (PPA)
The Invesco Aerospace & Defense ETF focuses on U.S. companies that support defense, homeland security and aerospace operations. It is filled with large, recognizable defense companies like RTX Corp. (RTX), Boeing Co. (BA) and GE Aerospace (GE), which make up almost one-quarter of the entire fund.
Only two of its top 10 holdings underperformed the S&P 500 in 2025, and those 10 stocks make up 57% of the ETF’s total assets. This winning formula has turned PPA into a steady performer that has an annualized 16.9% return over the past 15 years. Its average annual returns get higher as you zoom in closer, with three- and five-year annualized returns of 30.5% and 21.4%, respectively.
PPA has $7.6 billion in total assets and a 0.58% expense ratio that is partially offset by a 0.33% 30-day SEC yield.
SPDR S&P Aerospace & Defense ETF (XAR)
The SPDR S&P Aerospace & Defense ETF left the S&P 500 in the dust with a 65.3% return over the past 12 months and an annualized 19.6% return over the past decade. Those returns are worth the fund’s competitive 0.35% expense ratio. It also has a 0.2% SEC yield, which leaves some padding.
XAR focuses on small-cap and mid-cap growth stocks, with roughly 60% of its $5.6 billion in total assets in those types of stocks. All of its top 10 holdings outperformed the S&P 500 this year, with positions Rocket Lab Corp. (RKLB) and Kratos Defense & Security Solutions Inc. (KTOS) leading the way.
The defense ETF only has 40 holdings, but it makes the most of them. The strong focus on small- and mid-cap stocks means that most companies in this fund still have plenty of room to grow. They aren’t close to oversaturation or taking too much market share to the point where future growth is strained.
iShares U.S. Aerospace & Defense ETF (ITA)
The iShares U.S. Aerospace & Defense ETF is filled with stocks that specialize in commercial and military aircraft that are made in the U.S. It also contains defense equipment stocks that push returns higher.
The combination of domestic stocks has worked well based on the fund’s annualized 16.5% return over the past decade. Just like with the other defense ETFs, this fund’s annual returns are higher if you look at recent years.
Large-cap stocks dominate this ETF, and some mid-cap growth stocks also show up. However, there isn’t much room for non-growth mid-cap stocks or small-cap stocks as a whole. It’s also heavily concentrated, with more than three-quarters of its assets going into the top 10 holdings. GE Aerospace and RTX are the top two holdings, and they make up about 37% of the fund’s entire portfolio.
ITA comes with a 0.38% expense ratio and a 0.6% 30-day SEC yield.
Global X Defense Tech ETF (SHLD)
The Global X Defense ETF focuses on where military technology will head next instead of where it currently is. Cybersecurity firms and artificial intelligence giants are prominently included in this fund.
Lockheed Martin Corp. (LMT), RTX and Palantir Technologies Inc. (PLTR) are some of the most heavily weighted positions, all at under 8%. SHLD is a top-heavy fund, with about 60% of its assets allocated toward the top 10 holdings. Rheinmetall AG (7.6%) is another notable top-10 holding that more than doubled in 2025.
SHLD’s 0.5% expense ratio is almost completely erased by its 0.46% SEC yield. A one-year return of over 101% sweetens the deal. The defense ETF achieved that return with a strong focus on large-cap military stocks. All except 30% of its holdings are large-cap stocks.
SPDR S&P Kensho Future Security ETF (FITE)
The SPDR S&P Kensho Future Security ETF prioritizes new technology that is changing how wars are fought and won. It has a 0.45% expense ratio and a little over $108 million in total assets. Just remember lower assets with a small pool of participants can suggest a lower level of liquidity.
FITE’s portfolio is filled with small-cap stocks, which can result in more volatility. Less than 20% of its total assets are in large-cap stocks. Investments such as Planet Labs PBC (PL), AeroVironment Inc. (AVAV), Kratos and Rocket Lab lead the way. However, the top 10 doesn’t have as much of an influence on the total portfolio since those positions only make up 18% of the entire fund.
This formula for success has produced an annualized 15% return over the past five years. That return goes up to 29.8% if you only look at the past three years. As military tech becomes more advanced and smaller companies win big contracts, FITE shares should rally.
Select STOXX Europe Aerospace & Defense ETF (EUAD)
The Select STOXX Europe Aerospace & Defense ETF focuses on European defense stocks. With money and military resources pouring into Ukraine, it’s no wonder this fund outperformed the S&P 500 in 2025, gaining more than 73% in the process.
The fund is relatively new and only has $1.3 billion in assets along with a 0.5% expense ratio, but its strong start has kept many investors on board. It has a 12-month return of 95.6% as of Jan. 9. Portfolio diversification isn’t a strong suit for this ETF, as it only contains 13 stocks; about 87% of its holdings are allocated to large-cap growth stocks, with Airbus SE (OTC: EADSY), Rheinmetall and BAE Systems PLC (OTC: BAESY) as the top three holdings.
Any uncertainty around U.S. involvement with NATO may ramp up European military spending, which can benefit the EUAD ETF.
Themes Transatlantic Defense ETF (NATO)
The Themes Transatlantic Defense ETF, not-so-subtly using the NATO ticker symbol, prioritizes aerospace and defense companies in NATO countries. The fund has a reasonable 0.35% expense ratio and pays a 0.7% 30-day SEC yield.
RTX, GE Aerospace and Boeing are the fund’s top three holdings, and they make up roughly one-quarter of the fund’s total assets. The NATO ETF has 85 holdings, and its top 10 positions make up 60% of assets. Large-cap stocks represent about 76% of holdings.
This approach produced more than 50% in gains last year. Like FITE, this fund is relatively new and has low assets. It’s only been around since October 2024. However, its portfolio composition and recent returns suggest it can be a long-term winner if military spending continues to rise.
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7 Best Defense ETFs to Buy for 2026 originally appeared on usnews.com
Update 01/12/26: This story was previously published at an earlier date and has been updated with new information.
