Invesco PPA Outperforms State Street XAR in 2026 Aerospace ETF Race
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
aerospace-etfdefense-stocks
Fazen Markets Editorial Desk
Collective editorial team · methodology
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A comparison of the two largest pure-play aerospace and defense exchange-traded funds reveals a significant performance gap in 2026. According to data aggregated by finance.yahoo.com on May 30, 2026, the Invesco Aerospace & Defense ETF (PPA) has posted an annualized total return of 18.2% year-to-date. This outperforms the 12.4% gain of the SPDR S&P Aerospace & Defense ETF (XAR) by 580 basis points. The divergence highlights a critical investment choice between fund construction methodologies in a sector buoyed by sustained defense budgets and commercial aerospace recovery.
The aerospace and defense sector is experiencing a unique convergence of multi-year tailwinds. Global defense spending reached a record $2.24 trillion in 2025, according to the Stockholm International Peace Research Institute, with NATO members exceeding the 2% of GDP spending target. The commercial aviation cycle is in a sustained upswing, with Boeing and Airbus backlogs extending over seven years for narrowbody aircraft. This dual-demand environment creates a fertile ground for equity investors, making ETF selection a key determinant of portfolio outcomes. The last comparable period of sector outperformance was in 2018-2019, following the U.S. National Defense Strategy rollout, when the S&P Aerospace & Defense Select Industry Index gained 26.4% over 18 months. The current catalyst chain is more durable, anchored in multi-year government procurement contracts and a post-pandemic travel rebound that is lifting aftermarket services revenue.
Concrete data illustrates the drivers behind the performance split. The Invesco PPA ETF holds 53 securities with a combined net assets of $3.8 billion as of May 29, 2026. Its top three holdings—Raytheon Technologies (RTX), Lockheed Martin (LMT), and Boeing (BA)—comprise 31.5% of the fund. In contrast, the State Street XAR ETF tracks an equal-weight index of 33 stocks with $1.5 billion in assets. This structural difference leads to stark weight disparities. For instance, Boeing represents a 9.8% position in PPA but only a 3.0% weighting in XAR. The performance of prime contractors has been superior in 2026: the market cap-weighted iShares U.S. Aerospace & Defense ETF (ITA), another peer, has returned 16.1%, lagging PPA but beating XAR. A key data point is the five-year annualized volatility, which stands at 18.4% for PPA versus 20.1% for XAR, suggesting the cap-weighted fund has offered slightly smoother returns.
The performance gap translates directly to gains for holders of prime contractor stocks over supply chain and smaller-cap names. Investors long PPA have benefited disproportionately from the rally in RTX, up 22% YTD, and Northrop Grumman (NOC), up 19%. Conversely, XAR's equal-weight approach gives heavier influence to companies like Hexcel (HXL) and Curtiss-Wright (CW), which have risen 8% and 11% respectively, diluting overall returns. A significant second-order effect is on ETF flows; PPA has seen net inflows of $412 million in 2026, while XAR has experienced modest outflows of $87 million, indicating institutional preference. A counter-argument is that XAR may offer better diversification and less single-stock risk, which could be advantageous if a major program at a prime contractor faces delays. The flow data suggests active positioning favors concentrated exposure to the largest, most liquid defense names, betting on their pricing power and dividend stability in a higher-rate environment.
Two immediate catalysts will test the durability of this trend. The U.S. Senate's markup of the FY2027 National Defense Authorization Act, expected by late July 2026, will provide clarity on budget growth rates for key programs. Secondly, the Q2 earnings season starting mid-July will spotlight commercial aerospace margins, with guidance from suppliers like Spirit AeroSystems (SPR) being critical. Technical levels to watch include the $144 resistance level for PPA, a breach of which could signal a continuation of its uptrend. For XAR, holding above its 200-day moving average near $126 is crucial for maintaining its bullish structure. Should global travel demand show signs of softening, XAR's lower exposure to cyclical Boeing may provide relative resilience, potentially narrowing the performance gap.
The SPDR S&P Aerospace & Defense ETF (XAR) carries a lower expense ratio of 0.35%. The Invesco Aerospace & Defense ETF (PPA) has a total expense ratio of 0.58%. This 23 basis point difference means that, all else equal, XAR's net returns would be higher by that margin. However, PPA's significantly stronger performance in 2026 has more than overcome this fee disadvantage, generating a net alpha for investors after fees.
The Invesco PPA ETF currently offers a 30-day SEC yield of 1.42%, while the State Street XAR ETF yields 1.18%. The higher yield for PPA is a direct function of its heavier weighting in large-cap, dividend-paying prime contractors like Lockheed Martin and RTX, which have consistent shareholder return policies. XAR's equal-weight methodology includes smaller, growth-oriented firms that often reinvest cash flow rather than distribute it, resulting in a lower aggregate yield.
Yes, the iShares U.S. Aerospace & Defense ETF (ITA) and the Invesco PPA ETF both include multinational corporations like Raytheon Technologies and Boeing, which derive significant revenue internationally. However, for pure exposure to European aerospace leaders like Airbus, BAE Systems, and Safran, investors typically use the SPDR S&P Kensho Future Security ETF (XKFS) or direct single-stock investments, as there is no major U.S.-listed ETF focused solely on non-U.S. aerospace and defense firms.
Invesco's cap-weighted PPA has delivered superior returns in 2026 by concentrating exposure to the sector's largest, best-performing prime contractors.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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