For the foreseeable future, there will be demand for defense companies and the products they make. Defense stocks tend not to be as glamorous as high-growth sectors, such as tech. However, they provide reliable revenue and income from a customer -- the U.S. government -- with a seemingly insatiable appetite for their products.
Defense stocks tend to be stable contributors to an income-focused portfolio. Their predictable long-term revenue streams translate into solid dividends and healthy returns for investors. Defense ETFs are a type of investment that holds a basket of defense stocks, allowing investors to gain exposure to multiple stocks in the sector instead of having to choose between the various companies.
NYSEMKT: ITA
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As of October 2025, the top five holdings in the Invesco Aerospace & Defense ETF were:
- RTX
- Boeing
- GE Aerospace
- Lockheed Martin
- Northrop Grumman (NOC +0.67%)
The ETF has 60 total holdings, with the top five representing about 36% of the total portfolio. The Invesco Aerospace & Defense ETF has an expense ratio of 0.58%.
3. SPDR S&P Aerospace & Defense ETF
SPDR S&P Aerospace & Defense ETF (XAR -0.41%) has $4.7 billion in assets under management and invests in the stocks that comprise the S&P Aerospace & Defense Select Industry Index. The index attempts to broaden exposure past the so-called "prime" contractors that dominate the top end of the defense market, incorporating a mix of mid-cap and small-cap industry exposure.
NYSEMKT: XAR
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NYSEMKT: ARKX
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In this case, that means the ARK Space Exploration ETF has a lot of its assets invested in space-focused companies, as well as enabling technologies companies and others that support aerospace missions. The fund has about $406.2 million in assets under management. As of October 2025, the top five holdings in the ARK Space Exploration & Innovation ETF were:
- Kratos Defense & Security
- Rocket Lab
- AeroVironment
- Archer Aviation
- L3Harris Technologies
The top five holdings represent about 42% of the total portfolio. ARK Space Exploration & Innovation ETF has a 0.75% expense ratio.
5. Direxion Daily Aerospace & Defense Bull 3X Shares
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN -0.45%) is intended to generate a 300% daily return compared to its benchmark, the Dow Jones U.S. Select Aerospace & Defense Index. The fund does that by using leverage. Investors should be aware that, along with the potential for added reward, leveraged ETFs carry significantly more risks than standard ETFs.
NYSEMKT: DFEN
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Are defense ETFs right for you?
When markets get volatile, it's nice to have a little diversification in your portfolio. Defense ETFs, like ETFs focused on the broader industrials sector, are unlikely to generate market-beating returns day in and day out. However, they do provide a basket of companies that tend to perform well in challenging times and offer a steady stream of income throughout the cycle.
The world can be a dangerous place. Investors may sleep better knowing that their portfolios contain companies designed to keep them safe when times get tough.
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