The ARK Space & Defense Innovation ETF (ARKX 2.24%) offers actively managed exposure to disruptive space technologies, while the State Street SPDR S&P Aerospace & Defense ETF (XAR 2.08%) provides low-cost, indexed-based access to established aerospace and defense companies.

The aerospace and defense sectors have attracted greater attention as technological innovation accelerates in orbit and on the ground. Both the State Street fund and the ARK fund offer ways to capture this momentum, though they vary significantly in their cost structures, historical volatility, and sector concentrations.

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.

Investors may find the State Street fund significantly more affordable than the ARK fund. The State Street fund operates with an expense ratio that is less than half of what is charged for the ARK fund’s active management.

Performance & risk comparison

What's inside

The State Street SPDR S&P Aerospace & Defense ETF (XAR) follows a modified equal-weighted index, which helps provide unconcentrated exposure to large-, mid-, and small-cap stocks in the industry. It focuses almost exclusively on the industrial sector, accounting for 99.00% of its portfolio. This fund launched in 2011 and maintains 41 holdings, with its largest positions including Rocket Lab USA (RKLB 6.99%) at 5.98%, Intuitive Machines (LUNR 14.51%) at 3.31%, and Carpenter Technology (CRS 0.08%) at 3.29%. It paid $0.88 per share over the trailing 12 months.

The ARK Space & Defense Innovation ETF (ARKX) is actively managed and looks to identify companies involved in orbital and suborbital aerospace, enabling technologies, and aerospace beneficiaries. Launched in 2021, the fund takes a more diversified approach, allocating 56.00% to industrials, 27.00% to technology, and 8.00% to consumer cyclicals. It currently holds 45 securities. Its top positions include Rocket Lab USA at 8.94%, Advanced Micro Devices (AMD +3.93%) at 7.84%, and L3Harris Technologies (LHX 1.52%) at 7.04%. The fund does not have a trailing-12-month dividend.

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Which looks like the better buy

The ARK Space & Defense Innovation ETF (ARKX) and the State Street SPDR S&P Aerospace & Defense ETF (XAR) are both defense sector exchange-traded funds (ETFs). Here’s how they stack up to one another.

First, let’s examine ARKX. This fund spans a variety of innovative sub-sectors, including rocketry, artificial intelligence (AI), and electric vertical takeoff and landing (eVTOL) aircraft. Top holdings include Advanced Micro Devices (AMD +3.93%), Amazon (AMZN 2.45%), Archer Aviation (ACHR 3.12%), Joby Aviation (JOBY 3.71%), and Palantir (PLTR 6.52%). While there is representation from large defense contractors, I would consider this fund more of an innovation ETF, with its significant holdings of forward-looking tech companies. ARKX has a relatively high expense ratio of 0.75% and pays no dividend.

Then, there’s XAR. This fund is more solidly focused on defense contractors and aerospace companies. Top holdings include Boeing (BA 3.27%), HEICO (HEI 0.91%), and Curtiss-Wright (CW +1.77%). XAR has an expense ratio of 0.35% and has a modest dividend yield of 0.3%.

In summary, these two funds offer compelling choices for investors considering the aerospace or defense sectors. ARKX is likely the better choice for more aggressive investors, with its mix of innovative tech companies. XAR will likely be favored by investors more specifically interested in the aerospace sector. At any rate, both funds have performed well over the last year, with ARKX delivering a 76% total return and XAR posting a 46% total return.