In 2021, the U.S. ended its longest war, withdrawing troops from Afghanistan almost 20 years after invading in October 2001. Experts have estimated the cost of that war to be $2.3 trillion. Nevertheless, the U.S. 2022 defense budget of $778 billion is one of the largest ever and American military spending as a percent of GDP remains one of the highest in the world at 3.7% in 2020.
Defense stocks have struggled to keep up with the broader market in recent years, with annualized 5-year returns of even the best-performing defense ETFs lagging the S&P 500 by about 3%. Currently, there are three ETFs that follow different indices tracking the aerospace and defense industry. They are listed below in order of 1-year return.
iShares US Aerospace & Defense (ITA)
The fund seeks to replicate the performance of the Dow Jones US Select Aerospace & Defense Index which is composed of US aerospace and defense equities. The fund invests at least 80% of its assets in the index, and its top holdings are Raytheon Technologies Corp, Boeing Co, and Lockheed Martin Corp.
|5-Year Return (Total)||47.03%|
Invesco Aerospace & Defense ETF (PPA)
The fund seeks to replicate the yield and price of the SPADE Defense Index. The fund invests at least 90% of its assets in the underlying index, and its top three holdings are Lockheed Martin Corp, Raytheon Technologies Corp, and Northrop Grumman Corp.
|5-Year Return (Total)||71.70%|
SPDR S&P Aerospace & Defense ETF (XAR)
Tracking the S&P Aerospace & Defense Select Industry Index, the fund’s top holdings are Spirit AeroSystems Holdings Inc, Mercury Systems Inc, and Lockheed Martin Corp. The fund follows a “sampling strategy” which allows the fund manager to invest in securities other than those securities comprising the underlying index, but at least 80% of the fund’s assets is invested in the index itself.
|5-Year Return (Total)||76.13%|
Brown University. "Costs of the 20-year war: $8 trillion and 900,000 deaths."
The World Bank. "Military Expenditure (% of GDP)."
United States Senate Committee on Armed Services. "Summary of the Fiscal Year 2022 National Defense Authorization Act."
iShares. "iShares U.S. Aerospace & Defense ETF."
Invesco. "Invesco Aerospace & Defense ETF."
State Street Global Advisors. "SPDR S&P Aerospace & Defense ETF."