First Trust (MISL) vs. ARK (ARKX): Which Space and Aerospace ETF Reigns Supreme?

ARK Space & Defense Innovation ETF (NYSEMKT:ARKX) provides aggressive, high-beta exposure to space technology, while First Trust Indxx Aerospace & Defense ETF (NYSEMKT:MISL) offers a lower-cost, more conservative index-based approach focused heavily on industrials.

Investors looking to capitalize on the expansion of the "final frontier" have two distinct paths available through these funds. One strategy follows a structured index of domestic defense players, while the other actively targets global innovation. This analysis evaluates how these differing management philosophies impact costs, risk profiles, and recent performance.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The one-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The cost of ownership differs by 0.15 percentage points. While the ARK Space & Defense Innovation ETF charges 0.75%, the First Trust Indxx Aerospace & Defense ETF is slightly more affordable at 0.60%. Over long holding periods, these small differences in annual fees can meaningfully impact the total capital available for reinvestment, especially as MISL also pays a small dividend.

Performance & risk comparison

What's inside

ARK Space & Defense Innovation ETF primarily targets companies involved in space exploration and defense innovation. The fund manages 45 holdings, with a portfolio composition of 56% industrials, 27% technology, and 8% consumer cyclical. Its largest positions include Rocket Lab at 9.39%, Advanced Micro Devices at 7.75%, and L3Harris Technologies at 7.15%. This ARK fund was launched in 2021 and actively seeks long-term capital growth through innovation-driven securities.

First Trust Indxx Aerospace & Defense ETF tracks the Indxx U.S. Aerospace & Defense Index and currently holds 49 stocks. Its portfolio is more heavily concentrated in industrials at 83%, with technology accounting for 17%. Its top holdings include Palantir Technologies at 8.24%, Rocket Lab at 8.13%, and GE Aerospace at 7.88%. The First Trust fund was launched in 2022 and provides a less volatile alternative for investors seeking exposure to the aerospace and defense sectors.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

Over the last three years, these ETFs have sailed past the broader market. MISL generated annualized total returns of 32.4% while ARKX compounded returns at a jaw-dropping 40%. Buoyed by the world’s renewed interest in going back to space (or at least putting satellites up there) and governments looking to beef up their defenses via drones and other unmanned aerial vehicles, MISL and ARKX have thrived.

That said, both ETFs could be volatile rides for investors, as many of the stocks in these portfolios are growth-heavy and profit-light -- and several analysts have wondered if a bubble may be developing in this niche. Despite these risks, MISL seems to be the steadier of the two ETFs with a much smaller drawdown and a beta that is actually below the market’s -- making it much less volatile than I would’ve suspected. This gives MISL a slight edge in my eyes.

Furthermore, MISL’s expense ratio is slightly lower at 0.6% versus ARKX’s 0.75%. Both of these are already somewhat lofty expense ratios, so paying up for ARKX’s really weighs on returns over the long haul. On top of this, MISL pays a diminutive, but helpful, 0.3% dividend yield that helps offset this fee. Holdings-wise, I think both ETFs are great. I love that they each have Rocket Lab, and while AMD and Palantir aren’t “traditional” space companies, they’re excellent holdings.

All in all, if you are a risk-tolerant investor looking to swing for the fences, Cathie Wood’s ARKX may be for you. If you’d rather have a somewhat steadier ride like me, MISL might be the better, lower-cost option.

Josh Kohn-Lindquist has positions in Advanced Micro Devices, Palantir Technologies, and Rocket Lab. The Motley Fool has positions in and recommends Advanced Micro Devices, GE Aerospace, L3Harris Technologies, Palantir Technologies, and Rocket Lab. The Motley Fool has a disclosure policy.