Why This Defense ETF Could Keep Rallying as the Iran Conflict Escalates

Key Points

• Military operations are costing U.S. taxpayers nearly $1 billion per day, with incidents like the accidental downing of three U.S. F-15s by Kuwaiti friendly fire adding hundreds of millions.
• In the first week of the war with Iran, the U.S. fired more than 800 Patriot interceptor missiles, totaling at least $3.2 billion in munition costs.
• The iShares U.S. Aerospace & Defense ETF has been outperforming the S&P 500, and bolstered by ongoing war costs, is likely to continue doing so.

Beyond operations, unforeseen costs—like the friendly fire incident last week that resulted in Kuwait shooting down three U.S. F-15s—have added to those woes. The replacement costs for just those three U.S. Air Force jets are estimated to be around $100 million each. 

Meanwhile, on March 3, just days after the conflict began, President Donald Trump wrote on his social media platform, Truth Social, that the United States has a “virtually unlimited supply” of weapons, adding that “Wars can be fought ‘forever.’”

As a result, stocks operating in the aerospace and defense industry are getting a boost.

As a subsector of the industrials sector, government contractors have helped push that cohort to a year-to-date (YTD) gain of 9.55%, which is good for fourth among the S&P 500’s 11 sectors. 

That strong YTD performance in 2026 comes on the back of a 19.40% gain in 2025. And for shareholders of the iShares U.S. Aerospace & Defense ETF BATS: ITA—formerly the iShares Dow Jones U.S. Aerospace & Defense Index Fund—the ongoing conflict in the Middle East could mean more gains to come. 

The World’s Largest Aerospace and Defense ETF

The ITA has amassed a market cap of nearly $11 billion and more than $16 billion in assets under management, making it the world’s largest aerospace and defense ETF. 

The ETF seeks to mirror the investment results of the Dow Jones U.S. Select Aerospace & Defense Index, which measures the performance of the aerospace and defense sector of the U.S. equity market. 

That index includes companies that manufacture, assemble, and distribute military aircraft and aircraft parts, radar equipment, drones and counter-drone technology, as well as other weapons and equipment for the defense industry. 

So far this year, the fund has gained nearly 8% compared to the broad S&P 500’s loss of 2.22%. Much of that interest is directly attributable to the defense contractors that make up the ITA’s holdings, which, for a number of reasons, have become household names over the past few decades. 

A Basket of Premier Defense Contractors

The fund offers investors a basket of aerospace and defense stocks that includes, by weighting, GE Aerospace NYSE: GE; RTX NYSE: RTX, formerly Raytheon; Boeing NYSE: BA; Lockheed Martin NYSE: LMT; Northrop Grumman Corporation NYSE: NOC; L3Harris Technologies NYSE: LHX; and General Dynamics NYSE: GD among its more than 41 holdings. 

Individually, those stocks have not had particularly stellar YTD performances. GE, for instance, is down 1.28% YTD compared to RTX’s 11.75% YTD gain. Boeing is down more than 2% while Lockheed Martin is up more than 35%. But on the whole, the outperformance has surpassed underperformance, the latter of which should play catch-up as the war with Iran grinds on longer. 

Take, for instance, the Patriot Advanced Capability-3 (PAC-3) interceptor missiles, which are produced by Lockheed Martin. Individually, the missiles cost $4 million each. In the first week of hostilities alone, the United States fired more than 800 Patriot interceptor missiles, amounting to a cost of at least $3.2 trillion. 

Meanwhile, RTX produces the guidance systems and other variants of the Patriot missile, such as the GEM-T. In total, a full Patriot battery system—including launchers, radar, and a control station—costs over $1 billion, with the missiles alone accounting for approximately $690 million of that cost. 

As far as industry exposure goes, nearly 92% of the ETF directly aligns with aerospace and defense, while 3.4% of the fund is in metals and mining—an industry that has seen outsized benefits since rare earth elements have become a national security priority under Trump.  

The companies that compose the ITA include some of the leading contract recipients for the U.S. federal government. Lockheed Martin, for example, received more than $65 billion in awards from Uncle Sam last year. 

At present, the U.S. Department of Defense has over $48 billion in obligations to Lockheed Martin, of which more than 49% is earmarked for the Department of the Navy, nearly 24% for the U.S. Army, more than 20% for the Air Force, and nearly 3% for the Missile Defense Agency.

How Wall Street Feels About the ITA

Based on 395 analyst ratings issued over the past 12 months covering 24 companies in the ITA’s holdings, the fund receives a Moderate Buy rating.

Fueled by the Trump administration’s hawkish foreign policies, the ITA has been particularly attractive to institutional investors, with the smart money having piled in more than $3 billion over the past 12 months compared to outflows of just over $613 million.