U.S. Defense ETF Surpasses $15 Billion as Investor Inflows Accelerate

The iShares U.S. Aerospace & Defense ETF (ITA) has set a new record, with its market capitalization climbing to $15.59 billion. This milestone underscores a powerful decade-long performance, during which the premier defense-focused exchange-traded fund has delivered an annualized return of 15.9%, outperforming the broader market by approximately 2.3 percentage points each year. The recent surge in assets prompts an examination of the drivers behind this significant capital movement.

A sharp intensification of investor interest in American defense contractors became evident in the third week of February. Remarkably, over just a five-trading-day period ending last Tuesday, the fund attracted net inflows of $375.81 million. Zooming out to the past month, the net asset growth totals a substantial $1.27 billion, reflecting a major reallocation of capital by market participants toward U.S. defense equities.

Industry Titans Anchor the Portfolio

ITA employs a concentrated strategy, with its top ten holdings accounting for roughly three-quarters of the total portfolio weight. GE Aerospace constitutes the largest position at 20.11%, with RTX Corporation following at 16.43%. Boeing secures the third spot with an 8.32% weighting. Other foundational holdings include Lockheed Martin (5.37%), Howmet Aerospace (5.01%), Northrop Grumman (4.93%), and L3Harris Technologies (4.68%). This focus targets the sector's primary contractors.

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Record Backlogs Fuel Expansion Plans

The swelling fund volumes mirror the industry's solid fundamental outlook. Global military expenditure is projected to rise by 8.1% this year, reaching $2.6 trillion. To address an estimated record order backlog of $747 billion—which has expanded by 25% over the last two years—the five leading U.S. manufacturers have outlined collective investment plans totaling $10.08 billion for 2026. These capacity expansions form the operational foundation for converting historic backlogs into future revenue.

In a competitive context, the ETF positions itself in the middle of the price spectrum with a total expense ratio of 0.38%. While rival products, such as the SPDR S&P Aerospace & Defense ETF (0.35%), may have a greater emphasis on mid-cap companies, the iShares fund deliberately concentrates on the large-cap primary contractors. The planned industrial capacity increases for 2026 are now seen as the key to unlocking the value of these unprecedented order books.