Which Defense ETF Is the Better Investment: Global X's SHLD or iShares' ITA?

iShares U.S. Aerospace & Defense ETF (NYSEMKT:ITA) offers a lower cost profile and stronger recent momentum, while Global X Defense Tech ETF (NYSEMKT:SHLD) provides a more diversified sector mix, including technology.

Both funds target the defense sector, yet they take distinct approaches to security selection. While ITA focuses on established U.S. aerospace and defense players, SHLD incorporates a technology tilt to capture the evolving landscape of modern defense systems and cybersecurity within the broader industrial complex.

Snapshot (cost & size)

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

The iShares U.S. Aerospace & Defense ETF is the more affordable option with an expense ratio of 0.38%. The Global X Defense Tech ETF has a slightly higher dividend yield of 0.53%.

Performance & risk comparison

What's inside

iShares U.S. Aerospace & Defense ETF focuses exclusively on the industrials sector, allocating 100% of its assets to it. Its portfolio consists of 44 holdings, and its largest positions include GE Aerospace at 20.99%, RTX at 14.71%, and Boeing at 9.16%. Launched in 2006, this fund has paid $1.07 per share over the trailing 12 months.

Global X Defense Tech ETF allocates 88% to industrials and 12% to technology. It holds 50 securities, and its top holdings include General Dynamics at 8.53%, RTX Corp at 8.44%, and Lockheed Martin at 8.23%. This fund, which was launched in 2023, has paid $0.36 per share over the trailing 12 months.

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

Which is the better ETF for investors?

This is a really fascinating battle between two ETFs that focus on different niches of the defense industry. For the most part, I think ITA is the slightly steadier-Eddie pick between the two ETFs, whereas SHLD may be more of a growth-focused investment. ITA’s two-year drawdown is lower than SHLD’s, its five-year beta is 1.01 (meaning it largely matches the market, and isn’t supremely volatile), and the ETF has delivered 13% annualized total returns since 2006.

However, ITA doesn’t come without its risks. It holds a whopping 21% position in GE Aerospace, a 15% position in RTX, and a 9% stake in Boeing — so investors need to be comfortable holding these stocks given their large allocations. SHLD also holds large positions, but not to this extreme. SHLD also diversifies its holdings across defense tech companies worldwide, whereas ITA focuses on the U.S. This adds another layer of diversification in favor of SHLD.

Lastly, while SHLD is slightly more expense fee-wise, its higher dividend yield helps offset this difference. Personally, I would rather own SHLD and swing for the fences a bit more. I like that Palantir is a top-five holding for the ETF, and I think its technology focus offers investors cybersecurity exposure, alongside access to many stocks that are helping to modernize outdated defense platforms. Investors shouldn’t expect the last two years’ returns to extend ad infinitum for both ETFs, but they both look like solid candidates to outperform over the long haul, despite slightly lofty expense ratios.

Josh Kohn-Lindquist has no position in any of the stocks mentioned. 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.