Defense ETFs: SHLD Has Lower Fees, PPA Boasts More Holdings

The Global X - Defense Tech ETF (NYSEMKT:SHLD) offers lower costs, while the Invesco Aerospace & Defense ETF (NYSEMKT:PPA) provides a deeper track record and higher recent total returns.

Both ETFs provide targeted exposure to the defense and aerospace industries, serving as defensive plays or thematic growth vehicles. While the Global X fund captures newer defense technology trends, the Invesco fund focuses on established U.S. homeland security and aerospace operations. This comparison weighs cost against performance history.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Global X fund is more affordable, with an expense ratio of 0.5%, compared to PPA’s 0.58%. Additionally, the Global X fund offers a slightly higher dividend yield of 0.5% versus 0.4% for its Invesco counterpart.

Performance & risk comparison

What's inside

The Invesco Aerospace & Defense ETF (PPA) focuses on the development, manufacturing, and support of defense and aerospace systems. Its portfolio holds 61 stocks, primarily allocated to Industrials (90%) and Technology (10%). Its largest positions include Boeing Co. (NYSE:BA) at 8.38%, General Electric Co (NYSE:GE) at 8.20%, and RTX Corp (NYSE:RTX) at 6.98%. Launched in 2005, the fund paid $0.66 per share over the trailing 12 months, reflecting a mature portfolio of American industrial staples.

The Global X - Defense Tech ETF (SHLD) tracks the Global X Defense Tech Index with a more concentrated 48 holdings. It mirrors the industrial tilt at 88% while allocating 12% to technology firms. Its top holdings include Lockheed Martin Corp (NYSE:LMT) at 8.70%, Rtx Corporation at 7.87%, and General Dynamics Corp (NYSE:GD) at 7.83%. Launched in 2023, the fund has a trailing-12-month dividend of $0.36 per share, representing a newer entry focused on modern warfare technology.

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

Which looks like the better buy

The Global X - Defense Tech ETF (SHLD) and the Invesco Aerospace & Defense ETF (PPA) are both defense sector ETFs that investors may want to consider. Let’s have a closer look at how these two ETFs compare to one another.

First, there’s SHLD. This fund holds about 50 stocks and was launched in 2023. Since its inception, the fund has generated a total return of 177%, equating to a compound annual growth rate (CAGR) of 45.7%. This is excellent performance, as the S&P 500 has generated a total return of 75% over the same period, with a CAGR of 23.1%. All that said, the fund does have an expense ratio of 0.50%, which is above average, and well above what investors will pay for many passive index funds with expense ratios below 0.10%. Finally, the fund has a rather meager dividend yield of only 0.5%.

Then, there’s PPA. It has slightly more holdings, with 61 stocks. This fund has a much longer history, having been started in 2005. Its lifetime total return is around 1,340%, equating to a CAGR of 13.9%. That’s better than the S&P 500, which has a CAGR of 11.4% over the same 21-year period. PPA’s expense ratio is 0.58%, which is also above average. Its 0.4% dividend yield suggests the fund may not be appealing to income-oriented investors.

In summary, both funds have delivered outstanding returns, both in the last few years and, in the case of PPA, over more than two decades. Therefore, growth-seeking investors would be wise to consider either fund. Those focused on performance and minimizing their expenses will likely favor SHLD.

Jake Lerch has positions in Boeing and Lockheed Martin. The Motley Fool has positions in and recommends Boeing, GE Aerospace, and RTX. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.