NATO’s defense ministers committed to spending at least 2.5% of GDP on defense, with Poland, the Baltics, and Greece already running above 4%, and the alliance has set a target of 5% of GDP on defense spending by 2035. In 2025, all 32 NATO allies met or exceeded the 2% target for the first time, compared with only three in 2014. That spending is funneling into munitions replenishment, air defense, drones, and next-generation systems across multi-year procurement cycles, and three ETFs sit squarely in the path of those dollars: the iShares U.S. Aerospace & Defense ETF (NYSEARCA:ITA), the Global X Defense Tech ETF (NYSEARCA:SHLD), and the Invesco Aerospace & Defense ETF (NYSEARCA:PPA).
The three funds approach the same theme differently. ITA is the liquid, traditional play on U.S. prime contractors. SHLD captures the European rearmament wave and the software and autonomy layer that older defense indexes barely touch. PPA splits the difference, with a broader basket that has quietly outperformed the other two so far this year.
Why primes and defense tech both win this cycle
The spending moves on two tracks. The primes (Lockheed Martin, RTX, Northrop Grumman, General Dynamics) collect the bulk of the multi-decade platform contracts: fighters, submarines, ballistic missile defense, tactical missiles. Jim Cramer flagged Lockheed specifically for its role in THAAD and Aegis BMD, and RTX for its missile portfolio, noting that the U.S. military is now replenishing stockpiles after exchanging so many missiles with Iran.
The second track is the layer that did not exist as an investable category five years ago: drones, counter-drone systems, AI targeting, satellite ISR, and cyber. BlackRock’s 2026 outlook explicitly flagged European defense tech as a medium-term opportunity tied to the 5% commitment, and Goldman Sachs pointed to the EU’s ReArm Europe plan adding more than €800 billion of defense spend. Funds built around the traditional Dow Jones aerospace index miss most of that second track by construction.
ITA: the liquidity anchor for U.S. primes
ITA is the default option for a reason. With $13.5 billion in net assets and a 0.38% expense ratio, it is the largest and most liquid pure-play in the category, tracking the Dow Jones U.S. Select Aerospace & Defense Index.
What it owns is concentrated. GE Aerospace alone accounts for 19% of the fund, RTX another 17%, and Boeing nearly 9%, putting the top three holdings at 44% of net assets. The rest of the top ten covers General Dynamics, L3Harris, Lockheed Martin, Northrop Grumman, TransDigm, and Howmet. Smaller positions in Rocket Lab and Axon Enterprise gesture at next-generation exposure, but the engine is the legacy prime layer.
The tradeoff is concentration risk on the commercial aerospace side. GE Aerospace and Boeing are heavily exposed to airline demand, not just Pentagon budgets, which is why a soft commercial cycle could drag the fund even if defense procurement accelerates. ITA has returned 7% year to date, 35% over the past year, and 307% over the past decade.
SHLD: where European rearmament shows up
SHLD is the contrarian pick, most directly tied to spending outside the U.S. Germany has suspended its constitutional debt brake to raise defense and infrastructure spending, and Goldman Sachs estimates German defense spending will rise by more than €80 billion (1.8% of GDP) relative to its 2024 budget. That spending lands disproportionately in companies that ITA does not own.
The portfolio shows it. Rheinmetall is the largest European holding at almost 7% of the fund, with BAE Systems at nearly 5%, Thales at about 4%, Leonardo at 4%, and Saab at 4%. South Korea’s Hanwha Aerospace sits at over 4%, and Israel’s Elbit Systems at about 3%. On the technology side, Palantir is a top-five position at almost 6%, alongside smaller weights in Kratos, AeroVironment, BigBear.ai, and counter-drone names.
The fund runs $7.5 billion in net assets at a 0.49% expense ratio. Performance has lagged recently, with the ETF up 2% year to date and 20% over the past year, partly because European defense names cooled after a sharp run last year. The tradeoff is currency exposure and political risk: if the U.S. and Russia reach a durable Ukraine settlement, European procurement enthusiasm could moderate faster than order books suggest.
PPA: the broader basket winning 2026
PPA tracks the SPADE Defense Index, which casts a wider net than ITA. The result is exposure to the same U.S. primes (Boeing, RTX, GE Aerospace, Lockheed, Northrop) plus government services firms, defense IT contractors, and mid-cap suppliers that the Dow Jones index either weights lightly or omits.
That broader mandate is paying off this year. PPA is up 11% year to date, ahead of ITA’s 7% and SHLD’s 2%. PPA’s 10-year return of 412% outpaces ITA by a wide margin, reflecting the contribution of mid-cap services names that compound at higher rates than megacap primes.
The tradeoff is liquidity and slightly higher tracking risk versus a pure prime-contractor basket. PPA is smaller than ITA and its index is less widely benchmarked. For a defense allocation meant to ride the full procurement cycle rather than just platform contracts, that is a reasonable price to pay.
Matching the fund to the investor
For a reader who wants one ticker to express the U.S. defense buildup and values liquidity above all, ITA remains the cleanest choice. The concentration in GE Aerospace and RTX means the fund will move with two specific companies more than most ETFs, but those are the two most directly tied to munitions replenishment and engine programs.
For exposure to the European rearmament side and the software and autonomy layer that traditional defense indexes underweight, SHLD is the only mainstream option doing the job seriously. It is the right pick for investors who think the next ten years of defense returns come disproportionately from Rheinmetall, BAE, Thales, Palantir, and a long tail of drone and AI names rather than another decade of F-35 deliveries.
PPA fits the investor who wants the U.S. primes but is unwilling to bet the allocation on three megacap holdings. The broader basket has outperformed in 2026, the 10-year track record is the strongest of the three, and the inclusion of defense services and mid-cap suppliers gives the fund more ways to win as procurement budgets flow through the supply chain. The case for continued defense spending growth rests on signed budget commitments in Berlin, Warsaw, London, and Tokyo, and on the spending target that NATO governments have now put their names to.
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