Conflicts in the Middle East, Ukraine and other parts of the world have brought a lot of uncertainty to financial markets. Despite all of the uncertainty, there is one undeniable fact that investors should keep in mind: Countries will invest more money into their defense systems and militaries as tensions grow.
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The U.S. House of Representatives recently passed a $1.15 trillion defense policy bill for fiscal year 2027. Spending is expected to go up since the conflict in Iran has drained U.S. military resources. The Center for Strategic & International Studies warned that the depleted inventories have “created a window of vulnerability for a potential Western Pacific conflict” and said that rebuilding those inventories has become “a major concern.”
This is expected to take multiple years, which means defense contractors should see a steady increase in U.S. government orders. Instead of guessing which defense stocks will be the biggest winners, investors can focus on defense ETFs that offer exposure to the entire industry.
Here are seven of the best defense ETFs to buy for 2026:
| ETF | Expense ratio | Total assets |
| Invesco Aerospace & Defense ETF (ticker: PPA) | 0.58% | $8.4 billion |
| State Street SPDR S&P Aerospace & Defense ETF (XAR) | 0.35% | $6.1 billion |
| iShares U.S. Aerospace & Defense ETF (ITA) | 0.38% | $14.4 billion |
| Global X Defense Tech ETF (SHLD) | 0.50% | $7.1 billion |
| State Street SPDR S&P Kensho Future Security ETF (FITE) | 0.45% | $144 million |
| Select STOXX Europe Aerospace & Defense ETF (EUAD) | 0.50% | $1.2 billion |
| Themes Transatlantic Defense ETF (NATO) | 0.35% | $103 million |
Invesco Aerospace & Defense ETF (PPA)
The Invesco Aerospace & Defense ETF focuses on U.S. companies that support defense, homeland security and aerospace operations. RTX Corp. (RTX
), GE Aerospace (GE) and Boeing Co. (BA) are the top three positions that make up more than 20% of the fund’s total assets.
Most of the fund’s holdings are large-cap stocks, which is a good setup for investors who want less volatility. The fund has outperformed the S&P 500 year to date and has produced an annualized 17.8% return over the past decade. Its three-year annualized return of 28.6% shows that recent momentum has been strong amid ongoing conflicts.
This defense ETF has roughly 60 holdings, but it is top-heavy, with its top 10 holdings making up more than half of its total assets. PPA has a 0.58% expense ratio and pays a 0.2% 30-day SEC yield. The fund has $8.4 billion in total assets.
State Street SPDR S&P Aerospace & Defense ETF (XAR)
The SPDR S&P Aerospace & Defense ETF has produced an annualized 33.4% return over the past three years as defense budgets expand. It’s well diversified, with its top 10 holdings making up less than one-third of its total assets. Four of its top five holdings have outpaced the S&P 500 year to date, including Carpenter Technology Corp. (CRS), which has more than doubled over the past year.
XAR only has a 0.35% expense ratio and pays a small 0.3% 30-day SEC yield. This fund places a large focus on small-cap and mid-cap growth stocks in the defense industry. That results in more volatility, but it also gives the fund a higher ceiling for long-term performance. They aren’t close to oversaturation or taking too much market share to the point where future growth is strained.
Oversaturation doesn’t appear to be a concern for now due to military resources that must be replenished. The pie is getting larger, and even a small slice of total defense spending can send a small-cap or mid-cap stock soaring. The XAR ETF offers exposure to those types of opportunities.
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 15.7% 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 about three-quarters of its assets going into the top 10 holdings. GE Aerospace and RTX are the top two holdings, and they make up more than 38% of the fund’s entire portfolio as of late July.
ITA comes with a 0.38% expense ratio and a modest 0.3% 30-day SEC yield.
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Global X Defense Tech ETF (SHLD)
The Global X Defense Tech 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.
It makes sense for defense investors to focus on this group of stocks. The U.S. military has used Anthropic, the Maven Smart System and other AI tools to prepare for military attacks and process vast amounts of real-time information in a short amount of time. This technology is extremely valuable, and as more governments shift to AI-first military campaigns, hackers and cybersecurity platforms become more valuable as well. That’s where the SHLD ETF comes into play.
It has a 0.5% expense ratio and pays a 0.5% SEC yield. The fund has produced almost 38% in annualized returns since its inception in September 2023. A focus on large-cap defense stocks has worked well for the fund. RTX, General Dynamics Corp. (GD) and Lockheed Martin Corp. (LMT) are its three largest positions, and they make up nearly 30% of the ETF’s total assets. More than 60% of its capital is spread across its top 10 holdings.
State Street 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 more than $140 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. Investments such as Varonis Systems Inc. (VRNS) and Oceaneering International Inc. (OII) are among the fund’s top five holdings. However, the top 10 doesn’t have as much of an influence on the total portfolio because those positions make up less than 20% of the entire fund.
This formula for success has produced an annualized 17% return over the past five years. That return goes up to 32.3% if you only look at the past three years. As military tech becomes more advanced and smaller companies win big contracts, FITE shares could rally.
Select STOXX Europe Aerospace & Defense ETF (EUAD)
The Select STOXX Europe Aerospace & Defense ETF focuses on European defense stocks. Although Europe has been less involved in the Iran conflict than U.S. contractors, last year’s tariffs provided a valuable lesson in how quickly the landscape can change and why it is beneficial to have some exposure to European companies.
The fund is relatively new and has around $1.1 billion in assets, along with a 0.5% expense ratio. Portfolio diversification isn’t a strong suit for this ETF, as it only contains 23 holdings; the majority of its positions are allocated to large-cap growth stocks, with Airbus SE (OTC: EADSY), Rolls-Royce Holdings PLC (OTC: RYCEY) and Rheinmetall AG (OTC: RNMBY) in the top 10.
Uncertainty around U.S. involvement with NATO ramped up European military spending last year. If those tensions escalate amid differing positions in the Iran conflict, the EUAD ETF may rally as European governments pour more capital into their militaries.
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.
GE Aerospace, RTX and Boeing are the fund’s top three holdings, and they make up roughly 24% of the fund’s total assets. The NATO ETF has 85 holdings, and its top 10 positions make up 60% of assets.
Like FITE, this fund is relatively new and has low assets. It’s only been around since October 2024. However, its portfolio composition sets it up to 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 07/28/26: This story was previously published at an earlier date and has been updated with new information.
