MISL vs. JETS ETFs: Defense Stability Versus Airline Cyclicality

The First Trust Indxx Aerospace & Defense ETF (NYSEMKT:MISL) focuses on defense contractors and aerospace manufacturers, while the U.S. Global Jets ETF (NYSEMKT:JETS) tracks the global commercial airline industry.

Investors looking for exposure to transportation and national security often weigh these two funds. While they share an identical expense ratio, their underlying portfolios diverge significantly. One tracks the cyclical travel sector, while the other leans into the more stable, contract-driven defense industry.

Snapshot (cost & size)

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

Both funds are equal in cost with a 0.6% expense ratio. While the fees are the same, income-focused investors may prefer the U.S. Global Jets ETF for its higher payout compared to the First Trust fund.

Performance & risk comparison

What's inside

The First Trust Indxx Aerospace & Defense ETF focuses on industrials at 86%, technology at 12%, and communication services at 2%. Its largest positions include RTX Corporation at 8.5%, GE Aerospace at 7.8%, and Palantir Technologies at 7.6%. The fund was launched in 2022. It holds 44 securities. First Trust Indxx Aerospace & Defense ETF has paid $0.03 per share over the trailing 12 months, which on its recent $40.77 share price works out to a 0.1% yield.

U.S. Global Jets ETF concentrates specifically on the airline industry. Top holdings include Southwest Airlines at 11.66%, Delta Air Lines Inc at 11.09%, and American Airlines Group at 10.70%. The fund was launched in 2015. It holds 55 securities. U.S. Global Jets ETF has paid $0.23 per share over the trailing 12 months, which on its recent $26.10 share price works out to a 0.9% yield.

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Which looks like the better buy

These two aerospace funds share a broad label and an identical expense ratio, but that is where the similarities end. The two funds operate in vastly different corners of the industrials segment, and choosing between them comes down to which industry you'd rather own and the associated risks you find more manageable to endure.

MISL focuses on aerospace and defense themes, holding companies that operate in space technologies, cybersecurity systems, and uncrewed air mobility, as well as companies that make construction materials, electronics, and telecommunications equipment for both defense and commercial aviation. It focuses on government defense budgets, which tend to be more predictable, but also relies on aerospace innovation, which can be costly.

On the other hand, JETS is a play on commercial aviation -- the airlines and infrastructure that move consumers from Point A to Point B, and back again. It's highly sensitive to fuel costs and travel demand, both of which have been pressured lately. Investors who believe in the long-term story and who are willing to hold could be rewarded with a turnaround play from here, but the near-term future is uncertain.

Both funds operate in the capital-heavy industrials segment, which is also subject to broader production headwinds, labor negotiations, and supply chain constraints. They can be considered defensive plays that can produce modest income, but they’re best for long-term investors willing to hold for at least five years, if not longer.

Sarah Sidlow has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GE Aerospace, Palantir Technologies, and RTX. The Motley Fool recommends Delta Air Lines and Southwest Airlines. The Motley Fool has a disclosure policy.