Best Defense ETFs in 2026: ITA vs XAR vs PPA

Investing in the aerospace and defense industry can provide exposure to companies involved in military equipment, aircraft manufacturing, defense technology, electronic systems, and government contracts. However, choosing individual companies requires investors to evaluate business performance, contract exposure, financial strength, and industry risks.

Exchange-traded funds (ETFs) offer another way to invest in this sector. Instead of selecting individual companies, investors can buy shares in a fund that holds a group of aerospace and defense businesses.

Among the established U.S.-focused options, three funds worth comparing are the iShares U.S. Aerospace & Defense ETF (ITA), State Street SPDR S&P Aerospace & Defense ETF (XAR), and Invesco Aerospace & Defense ETF (PPA). Although they target similar industries, their portfolio construction methods, holdings, and annual expenses are different.

Understanding these differences can help investors choose an ETF that better matches their goals. For more insights into exchange-traded funds, explore our ETF coverage and broader investing analysis 

ITA vs. XAR vs. PPA: Key Differences

The three funds provide exposure to aerospace and defense companies, but they do not distribute their investments in the same way. ITA places greater weight on larger companies, XAR uses a modified equal-weight approach, and PPA follows the SPADE Defense Index.

Expense ratios and fund characteristics can change. Check each issuer’s latest fund information before investing.

1. iShares U.S. Aerospace & Defense ETF (ITA)

ITA is designed to track the Dow Jones U.S. Select Aerospace & Defense Index. It provides exposure to U.S. aerospace and defense companies, including major contractors and businesses supplying aircraft components, electronic systems, and other industry-related products.

One important feature of ITA is its market-cap-oriented portfolio construction. Larger companies can represent a greater share of the fund, which means its performance may be influenced significantly by the largest holdings.

Companies commonly found among its major positions include GE Aerospace, RTX, Boeing, Lockheed Martin, Northrop Grumman, and General Dynamics. Their portfolio weights change as share prices move and the fund rebalances.

ITA’s Main Characteristics

• Expense ratio: 0.37%.
• Investment approach: Market-cap-oriented weighting.
• Underlying index: Dow Jones U.S. Select Aerospace & Defense Index.
• Portfolio exposure: Established aerospace manufacturers, defense contractors, and related suppliers.
• Main consideration: Larger holdings can have a meaningful effect on overall fund performance.

ITA may appeal to investors who prefer greater exposure to established industry leaders. However, its weighting structure can create concentration risk. If a few large holdings experience declining share prices or weaker business conditions, they may have a noticeable effect on the ETF.

Investors should review the current portfolio rather than relying on an old holdings list. The  iShares fund profile provides the issuer’s latest information on expenses, holdings, performance, and fund documents.

2. State Street SPDR S&P Aerospace & Defense ETF (XAR)

XAR tracks the S&P Aerospace & Defense Select Industry Index. Its most important distinction is its modified equal-weight methodology, which gives companies more balanced representation than a traditional market-cap-weighted portfolio.

This approach can reduce the influence of the largest defense contractors and increase the relative exposure to smaller and mid-sized companies. As a result, XAR can provide a different mix of businesses across the aerospace and defense supply chain.

Its holdings may include major contractors as well as companies involved in aerospace components, electronics, aircraft systems, and specialized manufacturing. Individual positions and their weights change over time.

XAR’s Main Characteristics

• Expense ratio: 0.35%.
• Investment approach: Modified equal weighting.
• Underlying index: S&P Aerospace & Defense Select Industry Index.
• Portfolio exposure: Large-, mid-, and smaller-cap aerospace and defense businesses.
• Main consideration: More balanced weights can increase the influence of smaller companies.

XAR has the lowest expense ratio among the three funds discussed here. However, a lower fee does not automatically make an ETF the best investment. Its weighting strategy can produce different results from ITA, especially when smaller companies perform differently from large defense contractors.

Investors should also consider that smaller companies can experience greater price fluctuations and may be more sensitive to changes in contracts, financing conditions, and business demand.

The State Street XAR fund page provides official details about its investment objective, expense ratio, holdings, and fund documents.

3. Invesco Aerospace & Defense ETF (PPA)

PPA tracks the SPADE Defense Index, which measures companies involved in the development, manufacture, operation, and support of U.S. defense, military, national and homeland security, and government space operations.

The fund offers exposure to a range of businesses connected to the defense industry. Its holdings can include major contractors, aerospace manufacturers, and companies supplying equipment and technology used across the sector.

PPA’s portfolio construction differs from XAR’s modified equal-weight approach. Its allocation method can give larger positions more influence, so investors should examine the latest holdings and weightings to understand where the fund’s exposure is concentrated.

PPA’s Main Characteristics

• Expense ratio: 0.58%.
• Investment approach: Tracks the SPADE Defense Index.
• Underlying index: SPADE Defense Index.
• Portfolio exposure: Defense contractors, aerospace businesses, and companies supporting military and government operations.
• Main consideration: It has the highest expense ratio among these three ETFs.

PPA has a longer operating history than ITA and XAR, with an inception date of October 26, 2005. Its longer history can be useful when reviewing how the fund behaved through different market conditions, although historical performance does not predict future returns.

The main drawback for cost-conscious investors is its 0.58% expense ratio. This is higher than the fees charged by ITA and XAR, making it important to consider whether PPA’s index exposure and portfolio characteristics justify the additional annual cost.

Investors can review the official Invesco PPA fund information for its investment objective, index details, fees, and current fund documents.

How ITA, XAR, and PPA Differ in Portfolio Diversification

Although all three ETFs invest in the aerospace and defense industry, their portfolio construction methods create different levels of company exposure.

ITA’s market-cap-oriented approach gives larger companies a greater influence on the portfolio. This can suit investors who want exposure to established industry leaders, but it can also increase reliance on a relatively small group of large holdings.

XAR uses modified equal weighting to distribute exposure more evenly across its portfolio. This reduces the dominance of the largest companies and gives smaller and mid-sized businesses a more meaningful role. However, this structure does not eliminate risk, and smaller holdings may experience greater volatility.

PPA provides exposure through the SPADE Defense Index. Its portfolio includes companies involved in different parts of the defense industry, but investors should still check the latest holdings to understand its concentration and sector exposure.

For a side-by-side look at fund characteristics, investors can use ETF.com’s ITA, XAR, and PPA comparison. The figures shown by comparison platforms can change, so they should be checked against the fund issuers’ latest documents.

Expense Ratios: Which Defense ETF Costs Less?

An ETF’s expense ratio is the annual operating expense charged by the fund, expressed as a percentage of assets. It is reflected in the fund’s returns rather than normally being billed as a separate payment to an investor.

The three funds have different annual expense ratios:

XAR has the lowest expense ratio at 0.35%, followed closely by ITA at 0.37%. PPA is more expensive, with an expense ratio of 0.58%.

For illustration, an investor holding $10,000 in each fund would have approximate annual expenses of:

• XAR: $35
• ITA: $37
• PPA: $58

These are simplified estimates based on the stated expense ratios and a constant $10,000 investment value. Actual fund expenses can vary with account value and the fund’s current expense structure. Brokerage commissions, bid-ask spreads, and taxes may also affect an investor’s overall costs.

A lower expense ratio can help reduce long-term costs, but fees should not be the only factor in an ETF decision. Portfolio construction, holdings, liquidity, risk, and investment objectives also matter.

How to Evaluate Defense ETF Performance 

Past performance is one of the factors investors may consider when evaluating defense ETFs. However, comparing returns requires using the same measurement period and the same return methodology.

For a meaningful comparison of ITA, XAR, and PPA, investors should examine:

• One-year total return: Shows how each fund performed over the most recent year.
• Three-year annualized return: Provides a longer view of performance across multiple market conditions.
• Five-year annualized return: Helps evaluate performance over a longer investment period.
• NAV total return: Measures performance based on the fund’s net asset value and includes reinvested distributions.
• Market-price return: Measures performance based on the ETF’s traded share price.

A return figure from one provider may differ from another because of the reporting date, market-price versus NAV calculations, or whether distributions are included. Investors should avoid comparing figures taken from different dates or using different methods.

It is also important to remember that a fund with the strongest recent return is not necessarily the best choice for the future. Defense-sector performance can change as company valuations, government contracts, operating costs, and market expectations change.

Key Risks of Investing in Defense ETFs

Defense ETFs provide exposure to a specialized industry. While this can help investors target a particular market segment, it also creates risks that differ from those of a broadly diversified stock-market ETF.

1. Industry Concentration Risk

ITA, XAR, and PPA focus on aerospace and defense businesses. Their performance can therefore be affected by developments within this industry rather than the broader economy alone.

A decline in defense-sector valuations or weaker company results could affect these funds even when other market sectors perform well.

2. Government Contract Risk

Many defense companies depend partly on government contracts. Changes in procurement budgets, contract awards, project delays, or political priorities can affect revenue expectations.

A company may also face higher costs or delays while fulfilling a contract, which can put pressure on its financial performance.

3. Geopolitical and Policy Risk

International conflicts and changes in national security priorities can influence defense demand and investor expectations. However, geopolitical developments do not guarantee higher profits or rising share prices for defense companies.

Government spending decisions, procurement schedules, and company execution all matter.

4. Company Concentration Risk

An ETF may hold many companies but still have significant exposure to a small number of large positions. This is particularly important when evaluating market-cap-oriented portfolios.

Investors should review the top holdings and their combined portfolio weight instead of judging diversification only by the total number of securities.

5. Valuation and Market Risk

Even when a defense company has a strong business, its stock can decline if investors believe its share price has become too expensive. Interest rates, earnings expectations, market sentiment, and broader economic conditions can all affect valuations.

6. Aerospace and Supply-Chain Exposure

Aerospace and defense ETFs may hold companies with commercial aviation or broader industrial exposure in addition to military-related businesses. Aircraft production delays, supply-chain disruptions, material costs, and changes in commercial travel demand can therefore affect some holdings.

How to Choose Between ITA, XAR, and PPA

The right ETF depends on the type of exposure an investor wants and the risks they are prepared to accept.

ITA may suit investors who:

• Prefer greater exposure to established, larger aerospace and defense companies.
• Want a market-cap-oriented portfolio.
• Are comfortable with the concentration that can come from larger holdings.

XAR may suit investors who:

• Prefer a more balanced distribution of company weights.
• Want exposure to smaller and mid-sized businesses alongside larger companies.
• Place importance on a relatively low expense ratio.

PPA may suit investors who:

• Want exposure linked to the SPADE Defense Index.
• Prefer its particular selection of companies across defense-related activities.
• Are willing to pay a higher expense ratio for its index strategy.

Before making a decision, investors should compare the latest holdings, fund documents, expense ratios, trading liquidity, and performance over matching periods. They should also consider how much additional exposure to the defense industry their existing portfolio already contains.

Investors researching individual defense companies may also find the site’s analysis of defense stocks useful. For a separate look at a private defense technology company, the Anduril stock investment guide explains the distinction between private-company exposure and publicly traded investments. Anduril is not a publicly traded holding that investors can buy directly through these three ETFs.

Final Thoughts: Which Is the Best Defense ETF?

ITA, XAR, and PPA are three established options for investors seeking exposure to U.S. aerospace and defense companies, but they serve different portfolio preferences.

ITA emphasizes larger industry companies through its market-cap-oriented approach. XAR uses modified equal weighting to give smaller and mid-sized holdings a more meaningful role, while PPA follows the SPADE Defense Index and has a higher expense ratio.

There is no single best defense ETF for every investor. The choice depends on portfolio construction, company exposure, annual costs, risk tolerance, and investment horizon. Comparing current fund documents and holdings is more useful than selecting an ETF solely because it recently delivered a higher return.

Investors should also remember that sector ETFs are not substitutes for a diversified portfolio. Anyone considering an investment should assess the risks and decide whether additional aerospace and defense exposure fits their financial goals. More market and company analysis is available through Invest Daily Times.

Disclaimer: This article is intended for general informational and educational purposes and should not be considered financial or investment advice. Investing in ETFs involves market risk, and investors may lose some or all of the money they invest. Fund performance, holdings, fees, and investment strategies can change over time, while past results are no guarantee of future returns. Before investing, review the latest prospectus and official fund documents, understand the risks and costs involved, and make decisions based on your own research and financial circumstances.