After the Midterms, Which of These 3 Defense ETFs Looks Strongest?

Key Points

• Democratic victories in the midterm elections could complicate plans for a substantial increase in U.S. defense spending.
• SHLD offers international exposure, while ITA and PPA focus primarily on U.S. aerospace and defense companies.
• The three ETFs differ in fees, holdings, liquidity, and portfolio concentration.

Democratic victories across the country in the 2026 midterm elections could complicate approval of the Trump administration's proposed $1.5 trillion fiscal 2027 defense budget. In the immediate aftermath of the election, defense contractors like Lockheed Martin Corp. NYSE: LMT shed value, though many analysts still remain optimistic about these companies' longer-term prospects.

Nonetheless, the Iran war continues, and many countries around the world are still dedicating additional resources to military and defense budgets. European NATO members and Canada, for instance, increased defense spending by almost 20% in 2025. With defense spending rising in many countries, investors might look to exchange-traded funds (ETFs) that could benefit from increased military spending around the world. The funds below—the Global X Defense Tech ETF NYSEARCA: SHLD, the iShares U.S. Aerospace & Defense ETF BATS: ITA, and the Invesco Aerospace & Defense ETF NYSEARCA: PPA—offer distinct views of the defense sector to appeal to investors with different focuses.

SHLD: Global Defense Exposure With a Focus on U.S. and European Stocks

SHLD is primarily focused on the U.S. defense sector, with about 65% of the portfolio invested in domestic stocks. However, the remainder is largely concentrated in European names, making SHLD a good choice for investors seeking out exposure to NATO defense spending in particular.

With the recent dip in early November 2026, SHLD's year-to-date (YTD) performance has declined by about 10%. For investors anticipating a longer-term reversal, the question becomes when SHLD has presented the best opportunity to buy in. Given the fund's 0.50% expense ratio, investors may not be interested in paying a moderate fee while the share price is declining.

Still, with over 50 holdings and a modest dividend yield of 0.72%, SHLD offers fairly broad exposure to the global defense market. Its geographic diversification could help the fund benefit from stronger military spending growth in some regions, even if others lag.

ITA: Lower Fees, But Heavy Concentration in Major Aerospace Companies

For a somewhat broader view of both the defense and aerospace industries, ITA's 54 positions include major military contractors as well as firms with more of a focus on commercial aviation. The firms do tend to be larger, slow-growing companies that offer stability in the face of wider market turbulence.

When military spending grows, the companies in ITA's basket tend to perform well, and that was largely the case throughout 2026. The fund remained fairly stable and even experienced periods of growth despite broader turbulence. Investors looking at recent performance and seeing a precipitous decline in early November should keep in mind that the fund underwent a three-for-one stock split at that time.

ITA's annual fee is 0.37%, making it a somewhat cheaper alternative to SHLD. In exchange, though, investors do give up some liquidity compared to other defense ETFs, and the portfolio can be fairly heavily concentrated in a small number of positions. The fund's investment in GE Aerospace NYSE: GE, for example, accounts for almost 20% of invested assets.

PPA: A Costlier Approach With Better Diversification, But a Portfolio Limited to Domestic Names

If ITA trades some of the liquidity of SHLD for a lower fee, PPA goes even farther. This fund has a larger asset base than SHLD but the lowest trading volume of the three, and in fact its expense ratio is also the highest at 0.58%. However, when it comes to breadth within the aerospace and defense industries, PPA may be a winner.

The fund has 67 holdings, the deepest collection of stocks of these three ETFs. While a handful of names are weighted more heavily than others, there are no single standouts representing a significant minority of the invested asset base—the largest few positions here are still under 10% of the total portfolio.

PPA is down about 2% YTD, but a good portion of those declines came in the days immediately following the midterm election. Still, as with the funds above, investors may be hesitant to buy in if they anticipate further declines before the fund begins to recover, particularly for the cost associated with PPA.

This ETF's geographic focus is primarily the United States, so it lacks the global perspective to draw on if domestic defense spending falters. However, investors may find catalysts for a reversal in the price of PPA depending upon how the Iran war continues to unfold, potentially leading to longer-term gains for the sector and, in turn, this ETF.