Defense ETFs: Positioning for a New Era of Geopolitical Risk

02 Mar 2026

Rising geopolitical tensions — from instability in the Middle East to heightened great-power competition — are once again putting defense spending in focus. Governments are accelerating procurement, modernisation and digital warfare capabilities, creating potential structural tailwinds for aerospace and defense companies.

Rather than betting on a single contractor, investors are increasingly turning to exchange-traded funds (ETFs) to gain diversified exposure to the broader defense ecosystem.

Why Defense Spending Has Structural Momentum

1. Lifecycle revenue provides long-term visibility
Roughly 70% of a major weapons system’s total lifetime cost comes from operations, maintenance and sustainment. Once systems such as fighter jets or missile defense platforms are deployed, they require decades of servicing, upgrades and technical support — creating relatively stable, multi-year revenue streams for contractors.

2. The installed base effect
Large-scale platforms like the F-35 fighter jet and Patriot missile systems remain operational for decades. Continuous maintenance and modernization reinforce recurring demand for aerospace and defense suppliers.

3. Continuous modernization and R&D
The U.S. Department of Defense has proposed nearly US$180 billion in research and development funding for FY2026. This supports next-generation sensors, software, cybersecurity and AI integration — signalling that defense budgets are evolving beyond traditional hardware.

4. Digital and AI integration
Modern conflict increasingly depends on cloud computing, artificial intelligence, surveillance systems and cybersecurity infrastructure. Software upgrades and data-driven capabilities introduce recurring revenue characteristics more commonly associated with technology companies.

Key Defense ETFs to Watch

iShares US Aerospace & Defense ETF (BATS: ITA)

A concentrated exposure to major U.S. aerospace and defense primes. The fund is heavily weighted toward industry leaders such as RTX Corporation and Lockheed Martin, companies known for missile defense systems, aircraft and advanced military platforms.
Best suited for: Investors seeking exposure to established defense giants with strong order backlogs.

Invesco Aerospace & Defense ETF (BATS: PPA)

A broader alternative to ITA, this ETF includes more mid-cap names and companies involved in logistics, surveillance, and supporting technologies.
Best suited for: Investors looking for diversified exposure across both traditional contractors and supporting defense ecosystems.

Global X Defense Tech ETF (NYSE: SHLD)

Focused on next-generation warfare technologies, including cybersecurity, AI and defense software. This ETF reflects the growing role of digital infrastructure in national security strategies.
Best suited for: Investors positioning for the tech-driven transformation of defense spending.

Exposure	Exchange	Ticker	Name	Description
Military / Defense	BATS	ITA	iShares US Aerospace & Defense ETF	Heavily weighted toward RTX ($RTX) and Lockheed Martin ($LMT), makers of the missile defense and aircraft currently engaged
Military / Defense	BATS	PPA	Invesco Aerospace & Defense ETF	A broader alternative to $ITA, including more mid-cap technology and surveillance companies that support military logistics
Military / Defense	NYSE	SHLD	Global X Defense Tech ETF	Focuses specifically on high-tech warfare, including AI and cybersecurity—critical for modern conflict and “recurring revenue” from software updates.

Exposure	Exchange	Ticker	Name	Description
Military / Defense	BATS	ITA	iShares US Aerospace & Defense ETF	Heavily weighted toward RTX ($RTX) and Lockheed Martin ($LMT), makers of the missile defense and aircraft currently engaged
Military / Defense	BATS	PPA	Invesco Aerospace & Defense ETF	A broader alternative to $ITA, including more mid-cap technology and surveillance companies that support military logistics
Military / Defense	NYSE	SHLD	Global X Defense Tech ETF	Focuses specifically on high-tech warfare, including AI and cybersecurity—critical for modern conflict and “recurring revenue” from software updates.

Why Consider ETFs Instead of Individual Stocks?

Defense ETFs allow investors to:

Diversify across multiple contractors and sub-sectors
Reduce company-specific or contract-specific risk
Gain exposure to both legacy primes and emerging defense-tech players
Capture structural increases in defense budgets rather than react to short-term geopolitical headlines

The Bigger Picture

Defense spending is increasingly shaped by long-term strategic competition, technological modernization and persistent geopolitical risks. With multi-decade sustainment cycles and expanding digital integration, the sector offers structural revenue visibility that differs from many cyclical industries.

For investors seeking macro-level exposure to rising defense budgets and long-term geopolitical shifts, defense ETFs provide a strategic and diversified entry point — without relying on the success of any single contract or company.

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An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12^th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

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