As of July 18, 2026, institutional investors are evaluating the two largest pure-play aerospace and defense exchange-traded funds: the iShares U.S. Aerospace & Defense ETF (ITA) and the First Trust Aerospace & Defense ETF (MISL). Combined, these ETFs represent over $7.5 billion in assets under management, offering distinct approaches to a sector buoyed by sustained defense budgets and commercial aerospace demand. This comparison examines their core methodologies, holdings, and performance characteristics, providing a data-driven overview for portfolio allocation decisions.
Context — why aerospace and defense ETFs matter now
Global defense spending reached a record $2.24 trillion in 2025, marking the tenth consecutive year of growth according to the Stockholm International Peace Research Institute. This trend, coupled with a multi-year recovery in commercial air travel, has solidified aerospace and defense as a resilient sector. The current macroeconomic backdrop of elevated geopolitical tensions and persistent inflation further underscores the defensive characteristics of government-contracted revenues.
The primary catalyst for investor interest is the continued passage of strong national defense budgets. The U.S. fiscal year 2026 National Defense Authorization Act authorized $923 billion in discretionary spending, a 4% increase from the prior year. This legislative certainty provides a visible revenue pipeline for major contractors, reducing earnings volatility. Both ITA and MISL are positioned to capture this trend, albeit through different portfolio constructions.
Data — what the numbers show
The core difference between the ETFs lies in their indexing strategies and resulting portfolio concentration. ITA tracks the Dow Jones U.S. Select Aerospace & Defense Index, holding 25 stocks with a market-cap-weighted approach. MISL tracks an equal-weighted index of 25 stocks, the Solactive Aerospace & Defense Index.
| Metric | iShares ITA | First Trust MISL |
|---|
| Assets Under Management | $5.8 billion | $1.7 billion |
| Expense Ratio | 0.40% | 0.60% |
| Top 5 Holdings Weight | ~51% | ~20% |
| Largest Holding | RTX Corp (~15%) | AAR Corp (~4.5%) |
ITA’s market-cap focus results in significant exposure to the sector’s giants. Its top three holdings—RTX Corp, Lockheed Martin, and Boeing—collectively account for approximately 37% of the portfolio. MISL’s equal-weight methodology distributes capital more evenly across its 25 constituents, giving smaller companies like AAR Corp and Mercury Systems the same allocation as Boeing. ITA has a lower expense ratio of 0.40%, compared to MISL’s 0.60%.
Analysis — what it means for markets / sectors / tickers
The contrasting strategies lead to divergent risk and return profiles. ITA’s performance is heavily influenced by the fortunes of its mega-cap holdings like Boeing and Lockheed Martin. A significant contract award or earnings beat for Boeing can disproportionately lift ITA. Conversely, MISL offers a broader, more diversified bet on the entire sector’s health, potentially capturing more upside from mid-cap innovators in areas like space technology or cybersecurity.
A key limitation for both funds is sector-specific risk. An unexpected downturn in defense spending or a major issue grounding commercial aircraft fleets would negatively impact all holdings. The equal-weight approach of MISL can underperform during a market rally dominated by large-cap stocks, as seen in 2025 when ITA outperformed by 280 basis points. Flow data indicates institutional investors often use ITA for core, directional exposure, while tactical allocators may use MISL for a purer play on mid-cap growth.
Outlook — what to watch next
The sector’s near-term performance will be guided by two key events. First, third-quarter earnings reports from Boeing and Lockheed Martin, scheduled for October 20 and 24, 2026, will provide critical insights into supply chain normalization and profit margins. Second, the outcome of the U.S. presidential election in November will shape expectations for the FY2027 defense budget.
Investors should monitor the 50-day moving average for both ETFs as a near-term sentiment indicator. A sustained break above this level on high volume could signal renewed institutional accumulation. For ITA, the $120 price level represents a key technical support zone established in the second quarter of 2026.
Frequently Asked Questions
What is the difference between a market-cap-weighted and equal-weighted ETF?
A market-cap-weighted ETF like ITA allocates more capital to companies with the largest stock market valuations. This means the fund's performance is heavily influenced by its biggest holdings. An equal-weighted ETF like MISL gives each company in the index the same allocation, providing more balanced exposure and reducing reliance on any single stock's performance.
How do these ETFs handle international companies?
Both ITA and MISL are focused exclusively on U.S.-listed companies. They may hold firms with significant international revenue, but their eligibility is based on listing and incorporation. For global aerospace and defense exposure, investors typically need to consider separate international sector ETFs or broad international equity funds that include companies like Airbus.
Which ETF is better for dividend income?
The iShares ITA ETF generally has a higher dividend yield, historically around 1.2%, compared to MISL's yield of approximately 0.8%. This is because ITA's large-cap holdings, such as Lockheed Martin and Northrop Grumman, have more established dividend policies. However, neither fund is primarily designed as an income vehicle, and dividend yields can fluctuate with company payouts.
Bottom Line
ITA offers concentrated exposure to defense giants, while MISL provides diversified access to the entire sector.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
