Defense Spending Is Surging. MISL Bets on Tech. ITA Bets on Tradition.

Investors choosing between First Trust Indxx Aerospace & Defense ETF (NYSEMKT:MISL) and iShares U.S. Aerospace & Defense ETF (NYSEMKT:ITA) may find that the iShares fund offers lower costs and significantly higher liquidity, while the First Trust fund provides a more growth-oriented mix through its inclusion of technology companies.

Both MISL and ITA target the domestic aerospace and defense industry, a sector often driven by government spending and commercial aviation cycles. While they share a primary focus, their underlying indexes lead to distinct portfolios, varying cost structures, and different risk profiles for long-term investors looking to capitalize on defense budgets and global travel demand.

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 iShares fund is noticeably more affordable for long-term holders, charging an expense ratio of 0.38% compared to the 0.60% fee for the First Trust fund. Additionally, ITA currently provides a slightly higher payout for income-seeking investors, with a trailing-12-month distribution yield that sits 0.13 percentage points above the yield offered by MISL.

Performance & risk comparison

What's inside

The iShares U.S. Aerospace & Defense ETF, launched in 2006, is purely focused on the industrial sector, which accounts for 100% of its weight. It holds 44 stocks and tracks a market-cap weighted index of U.S. equities, resulting in heavy concentration in its top positions. Its largest holdings include GE Aerospace (NYSE:GE) at 20.49%, RTX (NYSE:RTX) at 14.38%, and The Boeing Company (NYSE:BA) at 9.16%. The iShares fund has a trailing-12-month dividend of $1.07 per share.

In contrast, the First Trust Indxx Aerospace & Defense ETF, launched in 2022, offers a broader sector mix by allocating 83% to industrials and 17% to technology companies. It manages 49 holdings and tracks the Indxx US Aerospace & Defense Index. Its top holdings include Palantir Technologies (NASDAQ:PLTR) at 9.24%, GE Aerospace at 8.01%, and The Boeing Company at 7.78%. Because it includes software firms like Palantir Technologies, it carries a different risk profile than its older peer and paid $0.16 per share over the trailing 12 months.

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What this means for investors

Geopolitical tension has turned defense spending into one of the fastest-growing areas of government investment worldwide. European governments are pushing military budgets to Cold War highs, the U.S. defense budget continues to grow, and the nature of modern warfare is shifting rapidly toward software, drones, and AI-driven systems. That last point is what makes this comparison genuinely interesting.

ITA is built around the traditional defense industrial base: Lockheed Martin, RTX, Boeing, and GE Aerospace. These are the companies that have won government contracts for decades and will likely continue to do so. The fund's massive scale and lower fee reflect its status as the established choice for aerospace and defense exposure.

MISL is more future-focused. By including technology companies like AMD and Palantir alongside traditional defense names, it bets that the future of defense is as much about semiconductors and software as it is about aircraft and missiles. That growth-oriented tilt comes at a higher fee and with far less liquidity than ITA provides.

For investors who want straightforward, battle-tested exposure to the defense sector, ITA is the more dependable choice. MISL is the more interesting choice for those who believe the line between technology and defense is permanently blurring and want their aerospace allocation to reflect that shift.

Sara Appino has positions in Palantir Technologies. The Motley Fool has positions in and recommends Boeing, GE Aerospace, Palantir Technologies, and RTX. The Motley Fool has a disclosure policy.