Looking for an Aerospace and Defense ETF? Compare Funds From Invesco and First Trust

The aerospace and defense sector often serves as a unique industrial niche, blending long-term government contracts with high-stakes engineering. Investors may look to this space for defense-budget stability or the growth potential of commercial air travel and space exploration. The Invesco Aerospace & Defense ETF (NYSEMKT:PPA) provides a larger, more established vehicle with a lower expense ratio than the First Trust Indxx Aerospace & Defense ETF (NYSEMKT:MISL).

While both ETFs offer concentrated exposure to the defense industry, the Invesco fund's massive assets under management (AUM) and nearly two-decade history provide liquidity and institutional presence that the newer First Trust offering has yet to match.

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 Invesco fund is slightly more affordable, featuring a 0.58% expense ratio compared to 0.60% for the First Trust fund. This 0.02 percentage point yield advantage also provides a marginally higher payout for income-focused investors.

Performance & risk comparison

What's inside

The Invesco Aerospace & Defense ETF tracks the SPADE Defense Index, resulting in a portfolio of 60 holdings. While 94% of the fund is in industrials, it also includes a 6% allocation to information technology stocks and less than 1% to communications services. Its top positions feature Boeing Co (NYSE:BA) at 8.7%, GE Aerospace (NYSE:GE) at 8.3%, and RTX (NYSE:RTX) at 6.9%. Launched in 2005, the fund has a trailing-12-month dividend of $0.66 per share.

First Trust Indxx Aerospace & Defense ETF mirrors the Indxx US Aerospace & Defense Index and currently holds 50 stocks. Its largest positions include Palantir Technologies (NASDAQ:PLTR), Boeing at 8%, and Rocket Lab Corp (NASDAQ:RKLB) at 7.9%. Its sector mix leans 82.2% toward industrials and 17.8% toward technology, offering more exposure to high-tech defense solutions and space-based platforms. It was launched in 2022. The First Trust fund has paid $0.14 per share over the trailing 12 months, which, on its recent $45.77 share price, works out to a 0.31% yield.

Which fund is the better buy?

Over the past year, PPA, the Invesco Aerospace & Defense ETF, has returned 25.2%, edging out MISL, First Trust Indxx Aerospace & Defense ETF with its 22.9% return. Similarly, over the past three years, the Invesco fund has outperformed First Trust’s offering, 28.8% to 26.1%. First Trust is hurt by its short track record, since 5- and 10-year time frames for long-term performance are desirable.

First Trust is more heavily weighted in its top 10 stocks, at 62%, than Invesco, with 55%. Generally, if you’re buying an ETF, you want some diversification, so less concentration in the top 10 is preferable. The Invesco fund also offers a bit of foreign exposure (Israel), at just over 4%, whereas the First Trust fund is all U.S. equities.

The performance of both funds has been good, and there is reason to expect aerospace and defense stocks to remain strong. On balance, however, the Invesco Aerospace & Defense ETF, PPA, gets the nod for performance and portfolio construction.

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

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing, GE Aerospace, Palantir Technologies, RTX, and Rocket Lab. The Motley Fool has a disclosure policy.