In 2021, the U.S. ended its longest war, withdrawing troops from Afghanistan almost 20 years after invading in October 2001. Experts have estimated the cost of that war to be $2.3 trillion. Nevertheless, the U.S. 2022 defense budget of $778 billion is one of the largest ever and American military spending as a percent of GDP remains one of the highest in the world at 3.7% in 2020.
Defense stocks have struggled to keep up with the broader market in recent years, with annualized 5-year returns of even the best-performing defense ETFs lagging the S&P 500 by about 3%. Currently, there are three ETFs that follow different indices tracking the aerospace and defense industry. They are listed below in order of 1-year return.
The fund seeks to replicate the performance of the Dow Jones US Select Aerospace & Defense Index which is composed of US aerospace and defense equities. The fund invests at least 80% of its assets in the index, and its top holdings are Raytheon Technologies Corp, Boeing Co, and Lockheed Martin Corp.
| AUM | $2,545M |
| Expense Ratio | 0.42% |
| 1-Year Return | 4.02% |
| 5-Year Return (Total) | 47.03% |
The fund seeks to replicate the yield and price of the SPADE Defense Index. The fund invests at least 90% of its assets in the underlying index, and its top three holdings are Lockheed Martin Corp, Raytheon Technologies Corp, and Northrop Grumman Corp.
| AUM | $650M |
| Expense Ratio | 0.61% |
| 1-Year Return | 3.15% |
| 5-Year Return (Total) | 71.70% |
Tracking the S&P Aerospace & Defense Select Industry Index, the fund’s top holdings are Spirit AeroSystems Holdings Inc, Mercury Systems Inc, and Lockheed Martin Corp. The fund follows a “sampling strategy” which allows the fund manager to invest in securities other than those securities comprising the underlying index, but at least 80% of the fund’s assets is invested in the index itself.
| AUM | $1,067M |
| Expense Ratio | 0.35% |
| 1-Year Return | -8.00% |
| 5-Year Return (Total) | 76.13% |
Source: https://www.investopedia.com/news/top-3-defense-etfs-ppa-xar/?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral&yptr=yahoo