Background on Key Figures and Relevance
The aerospace and defense sector’s exchange-traded funds (ETFs) have demonstrated robust performance in the first month of 2026. Geopolitical tensions, largely influenced by U.S. President Donald Trump’s decisions, have bolstered these investment instruments.
Carlos Hernández, Director of Analysis at Vardez Capital, believes that the positive outlook for defense and aerospace ETFs is supported by three key factors: the persistence of geopolitical conflicts, an average potential return of nearly 10% for leading issuers in the sector this year, and an anticipated decline in valuations by 2026, with a possible contraction in the price-to-earnings ratio around 15%.
Hernández emphasizes that ongoing geopolitical conflicts will continue to drive demand for defense and aerospace industries, citing ongoing issues such as the Middle East conflict, war in Ukraine, and tensions between India and Pakistan as favorable for defense and aerospace technology providers.
Government Spending on Defense Expansion
Public defense spending is expanding, with the U.S. projecting a fiscal year 2026 budget of $901 billion. Meanwhile, several NATO member countries have announced increases in their military budgets, creating a high-visibility environment for defense contractors, equipment manufacturers, and technology companies associated with the sector.
Fundamental Strength of the Sector
From a fundamental perspective, the sector maintains solid foundations. Alejandro Garza, Director of Investments and founder of Aztlan Equity Management, highlighted the continued strengthening of structural demand.
“The fundamental outlook for the aerospace and defense sector is solid, with clear increases in new contracts and sustained demand growth in both North America and Europe, driven by the geopolitical environment,” Garza stated. In this context, he added that “themed ETFs for defense and aerospace are very attractive due to the rising fundamental demand for products they generate.”
Performance of Leading ETFs
- iShares U.S. Aerospace & Defense (ITA): The leading U.S. sector ETF has accumulated an approximately 8% gain in the year so far, following a roughly 50% advance in 2025.
- Invesco Aerospace & Defense (PPA): Composed of defense, national security, and aerospace companies, this ETF has seen a near 10% rise in the first days of 2026, after gaining over 36% in the previous year.
Future Outlook for Investors
Both Hernández and Garza agree that investors will pay closer attention to ETFs reflecting the sector’s transformation, with a gradual shift from traditional defense to advanced technologies.
