One common criticism of industry-specific exchange-traded funds (ETFs) is the top-heavy dominance by large-cap stocks, but the SPDR S&P Aerospace & Defense ETF (XAR -0.41%) addresses this issue head-on with an equal weighting methodology.
While it’s not the largest aerospace and defense ETF, it still manages a respectable $3.9 billion in assets under management and has been around since September 2011. That’s a shorter track record than some competitors, but long enough to span most major global conflicts of the past decade.
This ETF is one of roughly half a dozen notable options for aerospace and defense exposure, but it stands out by using a unique index that gives greater weight to smaller companies. Here’s how it works.
What is SPDR S&P Aerospace & Defense ETF?
SPDR S&P Aerospace & Defense ETF is a passive ETF that replicates a benchmark rather than selecting individual stocks. It simply buys and holds the same stocks as its index in identical proportions.
The benchmark is the S&P Aerospace & Defense Select Industry index, which isolates 38 aerospace and defense companies from the broader S&P Total Market index and equally weights them. This means every stock, whether small-, mid-, or large-cap, receives the same weight at each rebalancing.
The ETF trades with a 0.09% 30-day median bid-ask spread, offering average liquidity, suitable for buy-and-hold investors, though less ideal for frequent traders.
Exchange-Traded Fund (ETF)
How to buy SPDR S&P Aerospace & Defense ETF
- Open your brokerage app: Log in to your brokerage account where you handle your investments.
- Search for the ETF: Enter the ticker or ETF name into the search bar to bring up the ETF's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this ETF.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
Should I invest in SPDR S&P Aerospace & Defense ETF?
If you decide to invest in aerospace and defense, opting for this ETF over a competitor means you’re looking to avoid concentration in the big prime contractors and instead take a buy-the-basket approach.
Equal weighting helps here because it systematically trims positions that have outperformed and adds to those that have lagged, creating a built-in buy-low, sell-high mechanism without active management.
The trade-off is that you may miss stronger returns if the primes secure large contracts and outperform the rest of the sector.
You may also face higher volatility if small- and mid-cap names in the portfolio encounter a difficult macroeconomic environment, such as a slowdown in commercial aerospace demand or cuts to defense budgets.
Does SPDR S&P Aerospace & Defense ETF pay a dividend?
As of August 2025, it pays a quarterly distribution with a 30-day SEC yield of 0.23%. The low yield reflects the fact that most aerospace and defense companies reinvest heavily into research, development, and production capacity rather than returning large amounts of cash to shareholders. For investors in taxable accounts, this low payout can make the ETF more tax-efficient compared to higher-yielding funds.
What is SPDR S&P Aerospace & Defense ETF’s expense ratio?
The ETF has an expense ratio of 0.35%, meaning $35 annually for every $10,000 invested. This is on the lower end for aerospace and defense ETFs, making it relatively cost-efficient compared to many funds in this niche.
Expense Ratio
Historical performance of SPDR S&P Aerospace & Defense ETF
1 Year | 3 Year | 5 Year | 10 Year | |
Net Asset Value | 51.49% | 28.71% | 19.90% | 14.99% |
Market Price | 51.56% | 28.70% | 19.91% | 14.99% |
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The bottom line
SPDR S&P Aerospace & Defense ETF offers a distinct take on aerospace and defense exposure through its equal-weight methodology, which reduces reliance on a few large prime contractors and gives more room to smaller and mid-sized players.
This structure can help capture gains from emerging innovators and component manufacturers, but it also means performance can lag when the largest defense names dominate.
Valuations are currently elevated after several years of strong returns, and the fund’s liquidity is adequate for long-term investors but less optimal for high-frequency trading.
For those who want broad, balanced exposure to the U.S. aerospace and defense industry without excessive concentration risk, this ETF is a well-constructed option.
