Defense Stock ETFs: 4 Top Picks for a Volatile Market

Amidst geopolitical tensions and economic uncertainty, defense stocks have emerged as a potential haven for investors seeking stability and growth. Defense stock exchange-traded funds (ETFs) offer a convenient and diversified way to gain exposure to this sector.

What are Defense Stock ETFs?

Defense stock ETFs are funds that track the performance of a basket of companies involved in the defense industry. These companies include manufacturers of military equipment, aerospace and defense contractors, and providers of cybersecurity solutions.

Why Invest in Defense Stock ETFs?

There are several reasons why investors may consider adding defense stock ETFs to their portfolios:

• Defense Spending: Global defense spending is projected to reach $2.2 trillion by 2025, driven by increased geopolitical tensions and the need for modernization.
• Economic Stability: Defense companies typically benefit from stable revenue streams, as military contracts are often long-term and government-backed.
• Technological Advancements: The defense industry is at the forefront of technological innovation, with companies developing advanced systems for defense, cybersecurity, and space exploration.

Top 4 Defense Stock ETFs

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

• Expense Ratio: 0.48%
• Number of Holdings: 41
• Top Holdings: Boeing (11.6%), Lockheed Martin (10.1%), Northrop Grumman (8.6%)

ITA provides exposure to a broad universe of U.S. defense and aerospace companies. Its top holdings are large-cap industry leaders with solid financial positions.

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

• Expense Ratio: 0.35%
• Number of Holdings: 34
• Top Holdings: Boeing (10.6%), Lockheed Martin (9.5%), Raytheon Technologies (8.9%)

XAR offers similar exposure to the U.S. defense and aerospace sectors as ITA, but it has a lower expense ratio. It also includes companies involved in commercial aviation.

3. VanEck Vectors Aerospace & Defense ETF (VDEF)

• Expense Ratio: 0.35%
• Number of Holdings: 52
• Top Holdings: Lockheed Martin (8.1%), Boeing (7.3%), Northrop Grumman (6.6%)

VDEF provides a wider diversification across the aerospace and defense industry, with a focus on small- and mid-cap companies. It may offer higher growth potential than the larger-cap focused ETFs.

4. Fidelity MSCI Aerospace & Defense ETF (FDD)

• Expense Ratio: 0.12%
• Number of Holdings: 67
• Top Holdings: Lockheed Martin (6.4%), Boeing (5.8%), Airbus (5.5%)

FDD offers the lowest expense ratio among the top defense stock ETFs and includes both U.S. and international companies. It provides a more global exposure to the defense industry.

How to Invest in Defense Stock ETFs

• Research and Compare: Consider the expense ratios, number of holdings, and investment objectives of different defense stock ETFs before making a decision.
• Diversify your Portfolio: Defense stock ETFs should be part of a well-diversified portfolio, along with other asset classes such as stocks, bonds, and real estate.
• Consider your Risk Tolerance: Defense stock ETFs can be volatile, so it's important to choose ones that align with your risk tolerance and investment goals.

Pros and Cons of Defense Stock ETFs

Pros:

• Convenient and diversified exposure to the defense industry
• Potential for stability and growth in volatile markets
• Access to technological advancements

Cons:

• Can be volatile and sensitive to geopolitical events
• Limited exposure to companies outside the U.S. (for U.S.-focused ETFs)
• Higher expense ratios compared to some other ETFs

Conclusion

Defense stock ETFs can be a valuable addition to portfolios seeking diversification, stability, and potential growth in the face of geopolitical and economic challenges. By carefully researching and comparing different ETFs, investors can choose ones that align with their investment objectives and risk tolerance.