Portfolio data from BlackRock shows three iShares exchange-traded funds have significantly outperformed the S&P 500 index during the first half of 2026. The funds—iShares Biotechnology ETF (IBB), iShares U.S. Aerospace & Defense ETF (ITA), and iShares Semiconductor ETF (SOXX)—each delivered returns exceeding the benchmark by a minimum of 30 percentage points as of July 5, 2026. This performance divergence underscores a powerful rotation into sectors driven by distinct catalysts, from drug approvals to defense procurement.
Context — [why this matters now]
The current outperformance echoes a similar trend from the first half of 2021, when thematic ETFs focused on innovation and reopening themes surged. During that period, the ARK Innovation ETF (ARKK) outperformed the S&P 500 by over 40 percentage points. The present macro backdrop features moderating inflation and a Federal Reserve holding rates steady, which has fueled investor appetite for growth-oriented sectors. A key difference is the current concentration in structurally defensive and high-barrier-to-entry industries rather than speculative tech.
The catalyst for this rotation is a convergence of sector-specific events. In biotechnology, a wave of new drug approvals and positive late-stage trial data has buoyed the sector. For aerospace and defense, elevated global geopolitical tensions have triggered multi-year government spending commitments. Semiconductor performance is tied to sustained demand for advanced chips powering artificial intelligence infrastructure, alongside a resolution to major supply chain constraints that plagued the industry in 2024.
Data — [what the numbers show]
The performance gap is stark across the three funds. The iShares Biotechnology ETF has gained 48% year-to-date, compared to the S&P 500's 10% return. The iShares U.S. Aerospace & Defense ETF has rallied 42% over the same period. The iShares Semiconductor ETF leads the group with a 52% gain. These figures represent a performance differential of 32 to 38 percentage points above the benchmark index.
| ETF Ticker | YTD Return (%) | S&P 500 Outperformance (pps) | Assets Under Management (July 5, 2026) |
|---|
| IBB | 48 | 38 | $15.2B |
| ITA | 42 | 32 | $5.8B |
| SOXX | 52 | 42 | $12.5B |
Net inflows into these three ETFs totaled $4.5 billion in the second quarter alone. This contrasts with outflows from broad market ETFs like the SPDR S&P 500 ETF Trust (SPY), which saw $12 billion in redemptions. The average daily trading volume for SOXX has doubled compared to its 2025 average.
Analysis — [what it means for markets / sectors / tickers]
The flows indicate institutional investors are actively overweighting these specific themes within equity allocations. Key holdings within these ETFs have been primary beneficiaries. Moderna (MRNA), a top-10 holding in IBB, is up 65% year-to-date. Northrop Grumman (NOC), a major component of ITA, has gained 35%. NVIDIA (NVDA), the largest holding in SOXX, has advanced 55%.
This sector concentration presents a risk. The valuations of these ETFs have expanded significantly, with SOXX's price-to-earnings ratio reaching 32, compared to the S&P 500's 20. A slowdown in AI infrastructure spending or a de-escalation of geopolitical conflicts could trigger rapid multiple compression. The performance is also highly dependent on continued momentum-driven inflows, which can reverse quickly on negative news.
Hedge fund positioning data shows net long exposure to the semiconductor and biotech sectors is at a 3-year high. Option market activity points to continued bullish sentiment, with call option volume for IBB and SOXX exceeding put volume by a ratio of 2-to-1. Flow data suggests the buying is predominantly from systematic funds and large asset managers rebalancing strategic allocations.
Outlook — [what to watch next]
Earnings season beginning July 15 will be a critical test for these high-flying sectors. Guidance from semiconductor leaders like Taiwan Semiconductor Manufacturing Company (TSM) on July 18 will signal the durability of the AI demand cycle. Defense contractor Lockheed Martin (LMT) reports on July 23, with markets focused on updates to its order backlog. The Federal Open Market Committee meeting on August 1 will be scrutinized for any shift in tone that could impact growth stock valuations.
Technical levels to monitor include the 50-day moving average for each ETF, which has acted as support during pullbacks. A sustained break below the 50-day MA for SOXX, currently at $680, would signal a potential trend change. For the broader market, the S&P 500's 5,200 level represents key support; a breach could accelerate rotation out of high-beta thematic funds and back into value-oriented sectors.
Frequently Asked Questions
What does this ETF outperformance mean for a retail investor's portfolio?
Retail investors holding these ETFs have seen substantial gains concentrated in specific sectors. This highlights the double-edged sword of thematic investing: high returns come with higher volatility and concentration risk. Diversification remains critical, as the conditions driving this outperformance—like defense spending surges—may not be permanent. Investors should assess if their portfolio alignment matches their risk tolerance. Monitoring fund flows and valuation metrics can help identify potential entry or exit points.
How does this sector rotation compare to the dot-com bubble?
The current rotation shares similarities with the late 1990s, where investor enthusiasm focused on transformative technologies like the internet. Today, AI and genomics are the focal points. A key difference is the underlying profitability; many leading semiconductor and biotech firms today have strong earnings, unlike the profitless tech companies that dominated the dot-com era. However, stretched valuations in subsets of these sectors warrant caution against bubble-like behavior.
Are there other iShares ETFs showing similar strong performance?
Yes, other thematic iShares ETFs have also outperformed, though by smaller margins. The iShares Exponential Technologies ETF (XT) is up 25% year-to-date, and the iShares Robotics and Artificial Intelligence ETF (IRBO) has gained 28%. Their performance, while strong, has not matched the extreme outperference of the biotechnology, aerospace, and semiconductor funds, which benefit from more immediate and tangible catalysts.
Bottom Line
Concentrated bets on biotech, defense, and semiconductors have generated exceptional alpha, separating thematic ETFs from the broad market.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
