3 Defense ETFs to Invest in Defense

In 2021, the U.S. ended its longest war, withdrawing troops from Afghanistan almost 20 years after invading in October 2001. Experts have estimated the cost of that war to be $2.3 trillion. Nevertheless, the U.S. 2022 defense budget of $778 billion is one of the largest ever and American military spending as a percent of GDP remains one of the highest in the world at 3.7% in 2020.

Defense stocks have struggled to keep up with the broader market in recent years, with annualized 5-year returns of even the best-performing defense ETFs lagging the S&P 500 by about 3%. Currently, there are three ETFs that follow different indices tracking the aerospace and defense industry. They are listed below in order of 1-year return.

The fund seeks to replicate the performance of the Dow Jones US Select Aerospace & Defense Index which is composed of US aerospace and defense equities. The fund invests at least 80% of its assets in the index, and its top holdings are Raytheon Technologies Corp, Boeing Co, and Lockheed Martin Corp.

The fund seeks to replicate the yield and price of the SPADE Defense Index. The fund invests at least 90% of its assets in the underlying index, and its top three holdings are Lockheed Martin Corp, Raytheon Technologies Corp, and Northrop Grumman Corp.

Tracking the S&P Aerospace & Defense Select Industry Index, the fund’s top holdings are Spirit AeroSystems Holdings Inc, Mercury Systems Inc, and Lockheed Martin Corp. The fund follows a “sampling strategy” which allows the fund manager to invest in securities other than those securities comprising the underlying index, but at least 80% of the fund’s assets is invested in the index itself.

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