You’ve probably seen the headlines. Geopolitical tensions are everywhere. Defense budgets are ballooning. In early 2026, the talk of the town—at least in the corner of the New York Stock Exchange where the "big iron" trades—is President Trump’s proposed $1.5 trillion military-spending budget. It’s a staggering number. Naturally, everyone is looking at the iShares US Aerospace and Defense ETF, better known by its ticker, ITA.
But here is the thing.
Most people treat ITA like a simple "war chest" play. They think if the world gets messier, the ETF goes up. Simple, right? Well, sort of. Honestly, it’s a lot more nuanced than just buying a basket of missile makers and calling it a day. If you’re looking at this fund in 2026, you’re stepping into a sector that has outperformed the S&P 500 significantly over the last year—ITA was up roughly 61% in 2025—but it’s also facing some weird new rules.
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The Reality of the iShares US Aerospace and Defense ETF
The iShares US Aerospace and Defense ETF isn't just a collection of every company that makes a wing or a widget for the Pentagon. It’s a very specific, market-cap-weighted fund. This matters. It means the biggest companies have a massive say in how your investment performs.
We’re talking about heavy hitters.
GE Aerospace (GE), RTX Corp (RTX), and Boeing (BA).
Back in the day, Boeing was the undisputed king of this ETF. But after years of, let's say, "eventful" headlines regarding their 737 production milestones and safety concerns, the weighting has shifted. As of January 2026, GE Aerospace has actually taken the top spot in the portfolio, making up over 20% of the fund. RTX Corp follows closely at around 15%. When you buy ITA, you aren't just betting on "defense"; you are betting heavily on these two specific companies.
If GE has a bad quarter in their commercial engine division? ITA feels it.
If RTX hits a snag with their Pratt & Whitney engines? ITA feels it too.
Why the 2026 Narrative is Different
There’s a new wrinkle in the 2026 landscape that caught a lot of investors off guard. It's the January 7 Executive Order.
Basically, the administration signaled a huge push for defense spending—adding another $500 billion to the annual tab—but it came with a catch. The order targets major contractors, demanding they suspend stock buybacks and cap executive pay. The goal? Force that capital into "factory expansion and research."
For a long time, defense stocks were the darlings of the "shareholder return" crowd. They bought back shares like crazy. Now, the game is changing toward industrialization and R&D. This is why you saw ITA struggle for a moment in the afternoon session on Wednesday, January 7, before rebounding. Investors are trying to figure out if more spending makes up for less "financial engineering."
Performance and What the Numbers Actually Say
Let’s look at the cold, hard data.
The expense ratio for ITA sits at 0.38%.
Is that cheap?
Compared to a basic S&P 500 index fund that charges 0.03%, no.
Compared to its direct peers? It’s competitive. For instance, the Invesco Aerospace & Defense ETF (PPA) charges about 0.58%. On the other hand, the SPDR S&P Aerospace & Defense ETF (XAR) is slightly cheaper at 0.35%.
ITA is the "big liquid brother" of the group. It has over $13 billion in assets. If you’re a big-money trader, you like ITA because you can get in and out without moving the price too much.
ITA vs. XAR: The Weighting War
One thing most people miss is how these funds are built.
- ITA is market-cap weighted (Big companies get big slices).
- XAR is equal-weighted (Small and big companies get similar slices).
Because ITA leans so hard on the "primes" like Lockheed Martin and Northrop Grumman, it tends to be a bit less volatile than XAR. In 2025, ITA’s volatility was around 21.9%, while XAR was swinging around 25.6%. If you like the smaller, "disruptor" companies—the ones making weird autonomous drones or space-based sensors—XAR might actually be more your speed. But if you want the stability of government-contract-backed giants, ITA is the standard.
Is the Sector Overvalued?
This is the $1.5 trillion question.
As of mid-January 2026, the aerospace and defense industry is trading at a forward P/E of roughly 23x.
The broader S&P 500? That’s closer to 18.6x.
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So, yes, you are paying a premium. You’re paying for the fact that these companies have backlogs that stretch out for a decade. You’re paying for the "moat" that comes with being the only company on earth that can build a stealth fighter or a nuclear-powered aircraft carrier.
But look at the Price-to-Growth (PEG) ratio.
The industry’s PEG is about 1.77x, which is actually lower than the S&P 500’s 2.04x. This suggests that while the stocks look expensive on the surface, their projected earnings growth might actually justify the price tag. Analysts are expecting aerospace earnings to rise by 62% this season. That is wild. No other sector is even close.
The "Greenland" and "Venezuela" Factors
We can't talk about defense without talking about where the hardware might actually go. The start of 2026 has been intense. Between raids in Venezuela and talk of Greenland, the geopolitical "risk premium" is at an all-time high.
While that’s grim for the world, it provides a very solid "floor" for these stocks. Nations aren't just buying missiles for today; they are replenishing stockpiles that were depleted over the last three years. This isn't a "flash in the pan" trend. It's a multi-year cycle of re-armament.
Practical Strategy for Investors
So, you’re thinking about hitting the "buy" button on the iShares US Aerospace and Defense ETF.
What should you actually do?
First, check your concentration. If you already own a lot of "Industrial" sector ETFs, you might be doubling up on companies like GE or Honeywell without realizing it. ITA is basically a pure-play industrial fund.
Second, watch the dividend yield. It’s low.
We’re talking about a 30-day SEC yield of roughly 0.40%.
If you are looking for income to pay your mortgage, this isn't the fund for you. You are here for the capital appreciation. You are here because you think the world will continue to spend more on "peace through strength" than it did yesterday.
Third, keep an eye on the supply chain.
A big reason these stocks took off in late 2025 was that the supply chain finally "un-kinked" itself. For a while, companies had the orders but couldn't get the titanium or the chips to finish the planes. That’s mostly solved now. The "ramping up" phase of production is in full swing.
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Actionable Insights
- Compare the Weighting: If you want more exposure to mid-cap "pure" defense plays, split your allocation between ITA and XAR.
- Monitor the "Buyback Ban": If the administration actually enforces the ban on stock buybacks for defense contractors, expect some short-term volatility as "yield-chasing" investors exit.
- Use Limit Orders: Despite ITA being liquid, the sector can jump on a single social media post or news headline. Don't chase a 5% daily spike.
- Think Long-Term: Defense cycles are measured in decades, not quarters. If you're buying ITA, you should probably be looking at a 3-to-5-year horizon minimum.
The world in 2026 is complex. The iShares US Aerospace and Defense ETF is a reflection of that complexity. It’s a mix of commercial aviation recovery and military modernization. It's not a "get rich quick" scheme, but as a hedge against a volatile world, it’s hard to ignore.
Next Steps:
- Verify your current portfolio's exposure to the "Industrials" sector to avoid over-concentration in GE or RTX.
- Set a price alert for ITA around its 50-day moving average (currently near $210) to look for entry points during natural pullbacks.
- Review the Q4 2025 earnings transcripts for GE Aerospace and Lockheed Martin to see how they are navigating the new "no-buyback" executive orders.