iShares U.S. Aerospace & Defense ETF vs. State Street SPDR S&P Aerospace & Defense ETF: These Defense ETFs Have a Surprising Difference Investors Should Know for 2027

The iShares U.S. Aerospace & Defense ETF (NYSEMKT:ITA) and State Street SPDR S&P Aerospace & Defense ETF (NYSEMKT:XAR) offer exposure to two important industries: military defense and commercial aviation. With defense spending facing political uncertainty and commercial aerospace benefiting from continued demand, the distinction between these funds is increasingly relevant.

While the iShares fund concentrates heavily on a few household names along with substantial commercial aviation businesses, the State Street fund spreads its investments more evenly across aerospace and defense companies. These different approaches create distinct risk profiles that could influence performance heading into 2027.

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.

The State Street fund is slightly more affordable with a 0.35% expense ratio compared to the 0.37% charged by iShares. Investors seeking income may prefer the iShares fund, which offers a slightly higher payout to its shareholders.

Performance & risk comparison

What's inside

iShares U.S. Aerospace & Defense ETF focuses exclusively on U.S. aviation and defense companies through its market-cap-weighted strategy. It holds 50 stocks, and its largest positions include GE Aerospace (NYSE:GE) at 21.72%, RTX (NYSE:RTX) at 16.54%, and Boeing (NYSE:BA) at 6.99%. This strategy results in a top-heavy portfolio where the success of a few aerospace titans significantly impacts the overall performance. The fund was launched in 2006 and has paid $0.57 per share over the trailing 12 months, which on its recent ~$214.7 share price works out to a 0.27% yield.

The State Street SPDR S&P Aerospace & Defense ETF tracks the S&P Aerospace & Defense Select Industry Index, concentrating 100% of its portfolio in Industrials. It also holds 50 stocks, but its modified equal-weighting means its largest positions include Lockheed Martin Corp (NYSE:LMT) at 3.57%, Textron, Inc. (NYSE:TXT) at 3.47%, and TransDigm Group, Inc. (NYSE:TDG) at 3.29%. This equal-weight approach limits the influence of any single company and provides more exposure to mid-cap innovators within the sector. The fund was launched in 2011 and has paid $0.42 per share over the trailing 12 months, which on its recent ~$231.1 share price works out to a 0.2% yield.

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Which looks like the better buy

The iShares fund offers concentrated exposure to established industry leaders that account for nearly 38% of its portfolio. These substantial commercial aviation businesses offer opportunities beyond government defense contracts, such as aircraft production and maintenance. However, this concentration also leaves the fund particularly vulnerable to disappointing results from a handful of companies.

The State Street fund takes a more balanced approach, spreading its investments across large, mid-, and small-cap aerospace and defense companies. Its modified equal-weighting reduces dependence on individual industry giants while providing greater exposure to specialized manufacturers and emerging defense technologies. It also carries a slightly lower expense ratio of 0.35%, compared with 0.37% for the iShares fund.

For long-term investors the State Street SPDR S&P Aerospace & Defense ETF looks like the better buy. Its broader distribution of holdings offers a more balanced way to participate in military modernization and commercial aerospace growth without relying so heavily on a few industry leaders. That said, smaller contractors can introduce additional volatility, and neither fund is immune to changes in defense budgets or a slowdown in aircraft demand.

RJ Fulton has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing, GE Aerospace, Lockheed Martin, RTX, and TransDigm Group. The Motley Fool recommends Textron. The Motley Fool has a disclosure policy.