Better Aviation ETF: State Street's Aerospace-Focused XAR vs. U.S. Global's JETS Targeting Airlines

The State Street SPDR S&P Aerospace & Defense ETF (NYSEMKT:XAR) provides more affordable access to the defense and aircraft manufacturing industry, whereas the U.S. Global Jets ETF (NYSEMKT:JETS) focuses specifically on global airline operators.

Investors looking to gain exposure to the aviation sector may find these two funds offer very different risk-return profiles. While one fund focuses on the cyclical nature of commercial travel, the other aligns with broader industrial manufacturing and national security spending.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The State Street fund is the more affordable option, with an expense ratio of 0.35% compared to the 0.60% charged by the U.S. Global fund. In terms of income, the U.S. Global ETF provides a higher trailing distribution payout.

Performance & risk comparison

What's inside

The State Street SPDR S&P Aerospace & Defense ETF focuses on industrials at 98% and technology at 2%. It holds 47 positions, and its largest positions include Axon Enterprise (NASDAQ:AXON) at 3.35%, VSE (NASDAQ:VSEC) at 3.30%, and Hexcel (NYSE:HXL) at 3.05%. The fund was launched in 2011. The State Street SPDR S&P Aerospace & Defense ETF has paid $0.81 per share over the trailing 12 months, which on its recent ~$266.32 share price works out to a 0.30% yield.

The U.S. Global Jets ETF targets industrials at 89%, consumer cyclical at 8%, and technology at 3%. It holds 45 positions, and its top holdings include Southwest Airlines (NYSE:LUV) at 10.61%, American Airlines Group (NASDAQ:AAL) at 10.57%, and United Airlines (NASDAQ:UAL) at 10.56%. The fund was launched in 2015. The U.S. Global Jets ETF has paid $0.23 per share over the trailing 12 months, which on its recent ~$31.25 share price works out to a 0.70% yield.

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What this means for investors

For investors seeking exposure to the aviation industry, the State Street SPDR S&P Aerospace & Defense ETF (XAR) and U.S. Global Jets ETF (JETS) provide an efficient way to do so. Which to choose depends on whether you prefer XAR’s equal-weight approach to the aerospace and defense sector, or JETS’ focus on airlines using a tiered weighting methodology.

JETS represents a pure-play bet on the travel industry and commercial aviation. The fund allocates its portfolio holdings into tiers with the top four U.S. airlines each receiving 10% weighting, giving them an outsized impact on the ETF’s performance. The travel sector is on the upswing from pandemic-era struggles, making JETS a compelling fund to capture this growth, although its expense ratio is high and it’s more volatile than XAR, as illustrated by its higher beta and five-year max drawdown.

XAR provides exposure to the defense sector, which has seen increased federal spending under the Trump Administration. Its equal weighting ensures larger companies don’t dominate fund performance, which takes advantage of the higher growth potential of the smaller businesses among its holdings. XAR is the fund for investors who want to take advantage of the “Security Supercycle” driven by escalating geopolitical tensions and heavy government investment in military readiness and modernization.

Robert Izquierdo has positions in Southwest Airlines. The Motley Fool has positions in and recommends Axon Enterprise and VSE. The Motley Fool recommends Hexcel and Southwest Airlines. The Motley Fool has a disclosure policy.