Rising tensions in the Middle East have lifted defense stocks, which, in turn, is bringing more attention to defense ETFs. In particular, three funds appear especially well-positioned to hedge any escalation involving Iran:
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- iShares U.S. Aerospace & Defense ETF (ITA)
- Global X Defense Tech ETF (SHLD)
- Invesco Aerospace & Defense ETF (PPA)
However, ITA stands out because it has the highest exposure to major U.S. defense contractors. The fund is heavily weighted toward companies like RTX (RTX) and Lockheed Martin (LMT), both of which produce weapons systems that are widely used during military conflicts.
For example, RTX manufactures Patriot missile systems and Tomahawk missiles, which are commonly used for defense operations. At the same time, Lockheed Martin produces the F-35 fighter jet and THAAD missile interceptors, which play an important role in modern warfare.
Different Types of Exposure
Interestingly, other defense ETFs offer different ways to benefit from the same trend. For instance, SHLD focuses more on advanced defense technology and digital systems instead of traditional aircraft and weapons. Because of this, it includes companies like Palantir Technologies (PLTR), which provides AI-driven intelligence, surveillance, and threat detection tools.
Meanwhile, PPA takes a broader approach by holding 61 companies across aerospace, defense, and homeland security, helping spread risk across the entire defense supply chain.
Which Defense ETF Is the Better Buy?
Turning to Wall Street, out of the three ETFs mentioned above, analysts think that SHLD has the most room to run. In fact, SHLD’s price target of $85.48 per share implies 15% upside potential.
