Defense ETF alternative to build your own defense stocks index and backtest it against ITA and XAR
The biggest defense fund holds more GE Aerospace than Lockheed Martin, Northrop Grumman, General Dynamics and L3Harris combined. Pick the contractors, drone makers and defense software you actually want, set the weights, and see how the basket would have done next to the funds and the S&P 500. Then buy it at your own broker.
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Educational only · Never places a trade
In short
A defense ETF alternative is a basket of defense stocks you weight yourself instead of taking a fund's rule. It matters because the funds disagree about what defense is. On their October 2026 holdings files, Lockheed Martin, RTX, Northrop Grumman, General Dynamics and L3Harris made up 36.9% of Global X's SHLD, 32.8% of iShares' ITA and only 14.3% of SPDR's XAR, while GE Aerospace and Boeing, which mostly sell to airlines, were 28.3% of ITA. Building your own defense stocks index means choosing that mix, backtesting it, and buying the stocks at a broker with no expense ratio.
Summed from each fund's published holdings
How much of each defense ETF is defense contractors, and how much is jet engines?
The dark part of each bar is the five big US defense contractors. The red part is GE Aerospace and Boeing, which earn most of their money from airlines. The amber part is Palantir. The pale rest is everything else: parts suppliers, drone makers, shipbuilders and European groups.
Global X SHLD
36.9% primes
Oct 7. No Boeing, no GE Aerospace
iShares ITA
32.8% primes
Oct 6. GE Aerospace alone is 20.7%
Invesco PPA
30.4% primes
Oct 7. Boeing is the largest holding
Themes NATO
23% primes
Oct 8. Half the fund is European
First Trust MISL
22.8% primes
Oct 7. Plus 9.8% in SpaceX
SPDR XAR
14.3% primes
Oct 7. About 3% in each of 50 stocks
Vanguard VIS
8.7% primes
Aug 31. An industrials fund, not a defense fund
Start with ITA, because it is the fund most people buy first: $11.9 billion in assets and a 0.37% fee. Its index weights stocks by size, and the largest aerospace companies are not the defense specialists. GE Aerospace, which makes engines for Boeing and Airbus jets, was 20.7% of the fund on October 6. RTX was 15.9% and Boeing 7.6%. Lockheed Martin, Northrop Grumman, General Dynamics and L3Harris together were 16.9%, less than GE Aerospace alone. RTX is a real defense contractor through Raytheon, but about two thirds of its sales come from Pratt & Whitney and Collins Aerospace, which sell to airlines as well as to the military.
SHLD went the other way. Its index leaves out commercial aerospace, so it holds no Boeing and no GE Aerospace, and the five big contractors are 36.9% of it, the most of any fund here. The catch is the first line of its holdings: Palantir, at 12.5%. The same is true of First Trust's MISL, where Palantir was 13.1% and SpaceX another 9.8%. If "defense tech" sounds like drones and missiles, check how much of it is one software company.
XAR is the outlier in a different way. Its index holds roughly 3% in each of 50 stocks, so Kratos and AeroVironment get the same weight as Lockheed Martin. That is the fund with the most small drone and component makers and the least of any single name. None of these rules is wrong. They are seven answers to the question of what a defense investment should hold, and a basket of your own lets you give your own.
From each issuer's fund page and holdings file
Which defense ETF holds what, and how does each one pick its stocks?
| Fund | Expense ratio | Stocks | Rule | Largest positions |
|---|---|---|---|---|
| iShares U.S. Aerospace & Defense (ITA) | 0.37% | 54 | Dow Jones U.S. Select Aerospace & Defense, weighted by size with caps | GE Aerospace 20.7%, RTX 15.9%, Boeing 7.6%, Howmet 4.7%, TransDigm 4.6% (Oct 6) |
| SPDR S&P Aerospace & Defense (XAR) | 0.35% | 50 | S&P Aerospace & Defense Select Industry, modified equal weight | Rocket Lab 3.5%, Honeywell Aerospace 3.1%, Moog 3.0%, TransDigm 3.0%, AeroVironment 3.0% (Oct 7) |
| Invesco Aerospace & Defense (PPA) | 0.58% | 71 | SPADE Defense Index, weighted by size with a cap | Boeing 9.0%, GE Aerospace 8.9%, RTX 8.9%, Lockheed Martin 7.9%, General Dynamics 5.2% (Oct 7) |
| Global X Defense Tech (SHLD) | 0.50% | 50 | Global X Defense Tech Index, US and European defense, no commercial aerospace | Palantir 12.5%, RTX 9.0%, General Dynamics 8.4%, Lockheed Martin 8.3%, Northrop Grumman 7.5% (Oct 7) |
| First Trust Indxx Aerospace & Defense (MISL) | 0.60% | 39 | Indxx US Aerospace & Defense, 8% cap at each rebalance | Palantir 13.1%, SpaceX 9.8%, RTX 7.9%, Boeing 7.2%, GE Aerospace 7.2% (Oct 7) |
| Themes Transatlantic Defense (NATO) | 0.35% | 90 | Solactive index of US and European aerospace and defense | RTX 8.4%, Rolls-Royce 8.1%, GE Aerospace 7.7%, Boeing 7.4%, Safran 6.5% (Oct 8) |
| Select STOXX Europe Aerospace & Defense (EUAD) | 0.50% | 23 | European aerospace and defense only | Rolls-Royce 22.7%, Safran 19.6%, Airbus 18.0%, BAE Systems 10.4%, Rheinmetall 7.0% (Oct 7) |
Size matters for trading costs. ITA ($11.9 billion), PPA ($7.6 billion), SHLD ($6.3 billion) and XAR ($5.5 billion) are large and trade with tight spreads. EUAD holds about $1 billion and MISL $769 million. NATO had $89 million on October 8, small enough that the gap between the bid and the ask can cost more than a year of fees on a quick round trip.
Overlap is lower than the labels suggest. ITA and XAR share 24 stocks, but because one weights by size and the other equally, the money they hold in common is only about 49%. ITA and PPA overlap more, about 63%. Owning two of these funds is less redundant than it looks and less diversified than it feels. The full fee ranking, the cheapest fund per dollar of contractor exposure and the Vanguard question are in our guide to the best defense ETF.
// The universe, four groups
Which stocks belong in a defense stocks index?
US-listed defense companies sell four different things. The share you give each group decides whether your index rides on the Pentagon budget, on new weapons programs, on government IT contracts or on airline orders.
1
Prime contractors
2
Drones, missiles and space defense
3
Defense software and services
4
Engines, airframes and parts
The prime contractors are the companies that win the large Pentagon programs: fighter jets, submarines, missiles, satellites. Their revenue follows the defense budget and multi-year contracts, so they tend to move less than the rest of the market. The drone, missile and space defense group is smaller and faster growing, and it swings much harder in both directions. Defense software and services companies sell analytics, IT and engineering work to government agencies, which makes them behave more like software stocks. The fourth group, engines and parts, is where most of the size sits, and most of its sales go to airlines.
A useful way to build the index is to decide the share for each group first, then the stocks inside it. Weighting is the second decision: by size, GE Aerospace and RTX dominate, so most people cap them or use an equal weight index for the rest. European defense groups such as BAE Systems, Rheinmetall, Thales and Saab trade in the US only over the counter or as ADRs, which is one reason the funds that hold them (SHLD, NATO, EUAD) cost more to run.
From a view on defense spending to a basket you can buy
How to build your own defense stocks index in four steps
1
Decide what counts
Settle the two arguments first. Do Boeing and GE Aerospace belong? Does Palantir? Your answer changes a third of the basket.
2
Fill the four groups
Search the catalog of US-listed stocks, add 12 to 25 names across primes, drones, software and parts, and set equal, size or your own weights.
3
Backtest against the funds
Run it against the S&P 500, and build a one-line index of ITA or XAR to put a fund with twenty years of history on the same chart.
4
Track it, then buy it
Follow the index daily against its benchmark, export the weights, and place the basket at your own broker when you are ready.
Defense is one of the few themes with long histories. ITA dates from 2006 and XAR from 2011, so you can test a basket through the 2008 crisis, the 2013 budget sequester and the 2020 collapse in air travel, which is the test that separates the prime contractors from the airline suppliers. Look at the maximum drawdown next to the S&P 500 before you look at the return. Backtests are hypothetical and past returns do not predict future ones. If you cap a name, test a quarterly reset with the custom index rebalancing tool, which is what keeps a cap a cap. MISL's 8% cap is the warning: Palantir had drifted to 13.1% between rebalances.
Three ways to own defense stocks, compared honestly
Build your own defense index vs a defense ETF vs a basket broker
| Defense ETF | Fidelity Basket Portfolios | Indexes, then your broker | |
|---|---|---|---|
| Who decides what counts as defense | The fund's index | You | You, and you can test it first |
| Yearly cost | 0.35% to 0.60% of the balance | $4.99 a month flat | From $24 a month for the software, billed yearly, plus your broker's cost |
| History you can test | Since 2005 to 2011 for PPA, ITA and XAR, one to four years for the rest | None | As far back as your youngest stock goes |
| European defense groups | SHLD, NATO and EUAD hold them | US-listed shares only | US-listed shares and ADRs |
| Per-stock tax losses | No | Yes, done by you | Yes, at your broker |
| Where it falls short | You take the fund's answer on Boeing and Palantir | No way to test a design before buying | You place and rebalance the trades |
The ETF wins when you want one ticker and no upkeep, and when a fund's definition already matches yours. XAR at 0.35% is a reasonable way to hold the whole industry evenly, and SHLD is the closest thing to a pure contractor fund if Palantir does not bother you. Building your own pays off on cost once the balance is large enough that a flat $288 a year for the software beats the fund fee, about $78,000 against ITA and $58,000 against SHLD, and whenever the mix you want is one no fund offers, such as the five primes plus the drone makers with no airline exposure at all.
Owning the shares has a tax side too. Defense stocks rarely move together for long: in 2020 Boeing lost about a third of its value over the year while Lockheed Martin lost under a tenth. When one name in your basket falls, it can be sold for a tax loss while the rest stays in place, which a fund does not allow. Check the dates with the wash sale calculator before you buy the same stock back.
What Indexes does and does not do: it is index construction, backtesting and tracking software. It does not hold money, place trades or give investment advice. You design and test the defense stocks index here and hold it wherever you already invest.
Defense ETF questions
What people ask before they buy defense stocks
What is the best defense ETF?
It depends on what you mean by defense. For the big contractors, Global X's SHLD (0.50%) held the most in Lockheed Martin, RTX, Northrop Grumman, General Dynamics and L3Harris, 36.9% on October 7, 2026, and no Boeing. For the widest spread, SPDR's XAR (0.35%) holds about 3% in each of 50 stocks. ITA (0.37%) is the largest fund but 44% of it is GE Aerospace, RTX and Boeing.
Does Vanguard have a defense ETF?
No. Vanguard has no aerospace or defense fund. Its nearest is the Vanguard Industrials ETF (VIS, 0.09%), where the five big defense contractors were 8.7% of the fund on August 31, 2026, next to Caterpillar, Deere, Union Pacific and Uber. To own defense stocks through Vanguard you would buy the shares in a Vanguard brokerage account.
Which defense ETF has the lowest expense ratio?
XAR and NATO both charge 0.35%, and ITA charges 0.37%. SHLD and EUAD charge 0.50%, PPA 0.58% and MISL 0.60%. On $25,000 that is $88 to $150 a year. The leveraged DFEN charges about 0.95% and resets daily, so it is a trading product rather than one to hold.
Is there a defense ETF without Boeing?
Yes. Global X's SHLD held no Boeing and no GE Aerospace on October 7, 2026, because its index leaves out commercial aerospace. EUAD holds no US stocks at all. Among the broad US aerospace and defense funds, XAR held the least Boeing at 2.8%, against 7.6% in ITA and 9.0% in PPA, where it is the largest holding.
Which defense ETF holds the most Lockheed Martin?
SHLD held the most Lockheed Martin, 8.3% on October 7, 2026, followed by PPA at 7.9%. NATO held 4.8%, ITA 4.6%, MISL 4.1% and XAR 2.9%. In the S&P 500 fund SPY, Lockheed Martin was 0.15%.
How much defense is in the S&P 500?
Very little. On SPY's October 7, 2026 holdings file, the thirteen aerospace and defense names together were 1.86% of the fund, and the five big contractors 0.78%. Palantir alone was 0.66%. VOO tracks the same index, so its weight is about the same.
Can I build my own defense ETF?
You can build the same exposure without a fund. Pick the contractors, drone makers and defense software companies you want, set the weights, backtest the basket against ITA, XAR and the S&P 500, then buy the shares at your broker, where there is no expense ratio and each stock carries its own tax lot.
Sources
Holdings, fees and assets from each issuer's fund page and daily holdings file, read October 7 and 8, 2026: ssga.com (XAR and SPY), globalxetfs.com (SHLD), themesetfs.com (NATO), ftportfolios.com (MISL) and select-funds.com (EUAD). The iShares and Invesco sites could not be read, so ITA and PPA holdings are the top 25 positions as published by stockanalysis.com for October 6 and 7, and ITA's fee and assets are from its iShares product page as indexed by search. Vanguard Industrials holdings from Vanguard's file for August 31, 2026. The five big contractors are Lockheed Martin, RTX, Northrop Grumman, General Dynamics and L3Harris; the shares in the chart are our own sums of the published weights. Overlap figures are lower bounds, because only the top 25 ITA and PPA positions were available. Fidelity Basket Portfolios pricing from fidelity.com. Holdings and fees change, so confirm them on the fund page before you buy. Indexes is not affiliated with any fund issuer or broker named here. We make index construction and backtesting software: we do not manage money, place trades or give investment advice, and backtested results are hypothetical.
Build the defense index you actually meant to buy
Choose the contractors and the weights, backtest the basket against ITA, XAR and the S&P 500, and track it every day. Then buy it wherever you invest.
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