How To Trade the New Defense Cycle - 3/19

Why the spending wave is getting bigger

The market still has a bad habit of treating defense like a headline trade.

A missile flies. A stock pops. Then everyone moves on.

That framing misses what is actually happening.

SIPRI says military spending has now risen every year for a full decade, and 2024 spending was up 37% from 2015 levels. NATO members alone accounted for $1.506 trillion of military expenditure in 2024, or about 55% of global spending, and more allies are already above the old 2%-of-GDP threshold than they were a year earlier.

That is why broad exposure makes sense here.

You can always swing at a single contractor, a drone name, or a defense-software story.

But when a theme is spreading across primes, aerospace, cyber, AI, and the broader national-security supply chain at the same time, ETFs usually give you a cleaner way to participate.

The cleanest ways to play the boom

ETF: Global X Defense Tech ETF (SYM: SHLD)
Defense-tech basket with global exposure to AI, cyber, drones, and advanced military systems.

Global X says SHLD holds 49 stocks, charges a 0.50% expense ratio, and is built around companies tied to defense technology rather than just traditional contractors. It is currently trading around $76.75. The fund is also more global than many investors realize: as of January 31, about 59% of assets were in U.S. names, with the rest spread across markets such as Germany, South Korea, Britain, France, Sweden, Italy, and Israel.

That gives SHLD a different personality.

This is the sharper tool for investors who think the next leg of defense spending is going into software, sensors, autonomy, networking, and modern battlefield systems — not just the old-line primes. Global X’s own framing leans that way: it describes defense tech as spanning industrials, cybersecurity, AI, and advanced military hardware, with revenues driven more by strategic priorities than by normal economic cycles.

ETF: iShares U.S. Aerospace & Defense ETF (SYM: ITA)
Concentrated large-cap U.S. aerospace and defense exposure.

ITA is the more traditional defense trade. BlackRock says the fund tracks U.S. aerospace and defense equities, charges a 0.38% expense ratio, holds 41 stocks, and had about $12.8 billion in net assets at the end of 2025. It was trading around $232.71 on March 16. One detail matters here: the fund’s top 10 holdings made up 76.47% of the portfolio at year-end, which tells you this is a blue-chip basket, not a broad equal-weight spread.

That concentration is not automatically a bad thing.

For investors who want the established giants of U.S. aerospace and defense — the companies with the deepest contracts, the broadest programs, and the most direct exposure to a bigger Pentagon budget — ITA is one of the cleanest vehicles on the board.

The broader baskets worth owning

ETF: SPDR S&P Aerospace & Defense ETF (SYM: XAR)
Modified equal-weight aerospace and defense basket with more balanced single-name exposure.

XAR takes a different approach. State Street says it tracks the S&P Aerospace & Defense Select Industry Index, charges a 0.35% gross expense ratio, holds 40 stocks, and uses a modified equal-weight structure. It's currently trading around $271.14. That equal-weight design keeps the biggest positions clustered around roughly 3.5% to 4.1% rather than letting a few mega-cap names dominate the entire fund.

That makes XAR useful in a very specific way.

It gives smaller and mid-sized winners more room to matter. In a defense cycle where the beneficiaries may not all be the biggest household names, that can be a real advantage. For investors who want less top-heavy exposure than ITA, XAR is the cleaner fit.

ETF: Invesco Aerospace & Defense ETF (SYM: PPA)
Rules-based U.S. defense, homeland security, and aerospace exposure.

PPA sits somewhere in the middle. Invesco says the fund tracks the SPADE Defense Index, invests at least 90% of assets in the stocks that make up that index, and charges a 0.58% expense ratio. It was trading around $175.39 on March 16. Invesco also describes the index as a way to capture companies that are systematically important to defense and national security, rather than relying only on broad industry classifications.

That distinction matters.

PPA is not just trying to mirror the old aerospace-and-defense bucket. It is trying to capture the broader defense ecosystem — the companies tied to military operations, homeland security, and aerospace support in a more rules-based way. For investors who want a middle ground between the big primes and the wider national-security supply chain, PPA deserves a hard look.

So the choice comes down to the kind of defense exposure that fits your portfolio.

SHLD gives you the modern-war angle.

ITA gives you the big U.S. primes.

XAR gives you more balanced breadth.

PPA gives you a rules-based national-security basket.

Different tools.

Same tailwind: the world is spending more on defense, and the commitments already on the table suggest that cycle is not ending anytime soon.