“Self-defense is nature’s eldest law.”
–John Dryden
When it comes to pithiness and brevity of word on philosophical subjects such as war and human nature, leave it to the poets. But when the time comes to act on those philosophies, arm yourself not only with knowledge but with a strategically solid plan.
This, of course, applies to your investments as much as any other part of life. And with markets starting to see some calm over the past week with some companies reporting solid earnings, including in the aerospace and defense sector, now is a good time to take stock (pun intended) of your portfolio.
As I hinted, the aerospace and defense industry could see a boost, with the possibility of an enlarged defense budget from the White House and ongoing geopolitical conflicts in the Middle East and Ukraine. So, this week, we will consider one of the oldest exchange-traded funds in this space, SPDR S&P Aerospace & Defense ETF (XAR).
This fund, founded in 2011 and run by State Street Global Advisors, is focused on industrials in aerospace and defense. What does this mean? In plain language, the fund invests in companies involved in the design, manufacturing and maintenance of aircraft, spacecraft and defense systems. It tracks the S&P Aerospace & Defense Select Industry Index, providing exposure to the Aerospace & Defense segment of the S&P TMI.
Unlike more traditional sector-based investing, this fund is 100% invested in the aerospace and defense subsector, making it a more strategic and targeted play for investors. The fund offers exposure to a variety of large- and mid-cap stocks using an equally weighted approach to minimize risk.
That said, the fund may be more vulnerable right now than other defense industry ETF, given the current trade war and tariff crisis, leading to increased costs, uncertainty and potential shifts in the supply chain. The fund, however, has its own defense in its equally weighted strategy — each of its 36 U.S.-based holdings is allocated at no more than 5% of the fund.
The fund has net assets of $2.6 billion and a yield of 0.70%. It has an expense ratio of 0.35% — one of the least expensive in this space. The fund fell 3.24% over the last month, 2.75% for the last three months and 2.75% for the year to date.
The top 10 holdings of XAR account for about 42% of the portfolio and include AeroVironment Inc. (AVAV), 4.55%, Rocket Lab USA Inc. (RKLB), 4.55%, Huntington Ingalls Industries, Inc. (HII), 4.40%, The Boeing Company (BA), 4.24%, Archer Aviation Inc. (ACHR), 4.21%, Kratos Defense & Security Solutions, Inc. (KTOS), 4.18%, BWX Technologies Inc. (BWXT), 4.09%, Axon Enterprise Inc.(AXON), 3.99%, Curtiss-Wright Corporation (CW), 3.98% and Howmet Aerospace Inc. (HWM), 3.94%.
Chart courtesy of Stockcharts.com.
You may be asking yourself why you’d buy shares in an industrials ETF in the face of tariff uncertainty. While market volatility has indeed affected defense stocks this year, big name companies such as Lockheed Martin (NYSE: LMT) and General Dynamics Corp. (NYSE: GD) rose on news of a proposed $1 trillion addition to the 2026 defense budget by the White House. Alongside this healthy budget addition, ongoing geopolitical conflicts are keeping defense companies upright, despite tariff policy whiplash. So, if you like defense as an offensive strategy, then this ETF could be a solid play.
The United States takes measures to protect itself, so why wouldn’t you? Investors should always do their due diligence before adding any stock, fund or ETF to one’s portfolio.
Finally, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
