Investing in defense and aerospace stocks can offer stability and growth potential, as these sectors tend to benefit from strong government contracts, technological advancements, and global defense needs. For investors looking to gain exposure to these industries, mutual funds that focus on defense and aerospace stocks can be a good option.
Below is a guide to some of the best mutual funds for defense and aerospace stocks in 2025, along with expert insights and comparisons.
Why Invest in Defense and Aerospace Stocks?
The defense and aerospace sectors are often seen as defensive, meaning they tend to perform well even during economic downturns. These industries are essential for national security, technological advancement, and innovation in air travel and space exploration. Many of the largest defense contractors and aerospace companies have long-term government contracts, making their business models relatively stable.
Key factors that make the defense and aerospace sectors attractive to investors include:
- Government Contracts: Companies in this sector, such as Lockheed Martin, Boeing, and Northrop Grumman, often secure long-term government contracts, especially from the U.S. Department of Defense and other global defense agencies.
- Technological Innovation: Aerospace companies are at the forefront of technological advancements, particularly in aviation, satellite technology, and space exploration.
- Global Defense Spending: The global defense budget continues to grow, with many countries increasing military spending in response to geopolitical tensions.
Best Mutual Funds for Defense and Aerospace Stocks
Here are some of the best mutual funds that invest in defense and aerospace stocks, providing you with exposure to this crucial sector in 2025.
1. Invesco Aerospace & Defense ETF (PPA)
- Expense Ratio: 0.59%
- Overview: PPA tracks the performance of the SPADE Defense Index, which includes U.S. defense and aerospace companies involved in aircraft, defense contractors, and aerospace technology.
- Top Holdings: Lockheed Martin, Boeing, Northrop Grumman, Raytheon Technologies.
- Why It's Great: This ETF provides focused exposure to aerospace and defense companies with a solid track record of growth and stability. The ETF includes both large-cap stocks and mid-sized companies, offering a diversified approach to the defense sector.
- Expert Tip: Consider PPA for a dedicated aerospace and defense exposure, especially if you want a fund that focuses on both large-cap defense contractors and smaller, innovative companies.
2. iShares U.S. Aerospace & Defense ETF (ITA)
- Expense Ratio: 0.42%
- Overview: ITA tracks the performance of the Dow Jones U.S. Select Aerospace & Defense Index, which includes a broad range of aerospace and defense stocks in the U.S.
- Top Holdings: Boeing, Lockheed Martin, Northrop Grumman, Raytheon Technologies.
- Why It's Great: ITA is one of the most popular ETFs for aerospace and defense, offering diversified exposure to major companies in the industry. The fund has a low expense ratio, making it a cost-effective choice for investors.
- Expert Tip: ITA is ideal for investors seeking broad exposure to both commercial aerospace and military defense contractors. It is well-suited for long-term investors looking to benefit from growing defense budgets and technological advancements in aerospace.
3. SPDR S&P Aerospace & Defense ETF (XAR)
- Expense Ratio: 0.35%
- Overview: XAR tracks the performance of the S&P Aerospace & Defense Select Industry Index, which includes companies primarily engaged in the aerospace and defense industries.
- Top Holdings: Lockheed Martin, General Dynamics, Northrop Grumman, L3Harris Technologies.
- Why It's Great: With a slightly lower expense ratio than some competitors, XAR offers a cost-effective way to invest in a broad range of aerospace and defense companies.
- Expert Tip: XAR is an excellent choice if you want a more diversified portfolio across the defense sector, including not only the major defense contractors but also smaller firms with innovative technologies.
4. T. Rowe Price Global Stock Fund (PRGSX)
- Expense Ratio: 0.95%
- Overview: While not exclusively focused on aerospace and defense, PRGSX invests heavily in U.S. large-cap stocks, including defense contractors and aerospace companies, as part of its diversified global stock approach.
- Top Holdings: Boeing, Lockheed Martin, Raytheon Technologies, and General Dynamics.
- Why It's Great: T. Rowe Price's PRGSX offers diversified exposure to aerospace and defense stocks, but it also includes other sectors, making it an excellent choice for those looking to balance defense sector investments with broader global stock exposure.
- Expert Tip: PRGSX is ideal for investors who want broad global stock exposure but still want significant representation from aerospace and defense companies.
5. Fidelity Select Defense and Aerospace Fund (FSDAX)
- Expense Ratio: 0.70%
- Overview: FSDAX is an actively managed mutual fund that invests in a range of aerospace and defense companies, including both large-cap defense contractors and smaller, emerging players in the sector.
- Top Holdings: Lockheed Martin, Northrop Grumman, Boeing, Raytheon Technologies, and General Dynamics.
- Why It's Great: With an active management strategy, FSDAX allows fund managers to adjust their holdings based on market conditions, which can be advantageous in a rapidly changing sector like defense and aerospace.
- Expert Tip: FSDAX is an excellent choice for investors who want professional management of their aerospace and defense investments. It’s suitable for those who believe that active management can generate alpha in a specialized sector like defense.
6. Vanguard Total World Stock Index Fund (VTWSX)
- Expense Ratio: 0.08%
- Overview: Although not a dedicated aerospace and defense fund, VTWSX offers broad global stock exposure, including significant allocations to defense and aerospace companies worldwide.
- Top Holdings: Lockheed Martin, Boeing, Northrop Grumman, Raytheon Technologies, and BAE Systems.
- Why It's Great: VTWSX provides exposure to both U.S. and international aerospace and defense companies, making it an excellent option for investors seeking diversification across the global defense industry.
- Expert Tip: VTWSX is ideal for investors who want a one-stop fund that covers a wide range of global industries, including aerospace and defense.
Key Factors to Consider When Investing in Defense and Aerospace Mutual Funds
- Expense Ratios: Always consider the cost of the fund. Lower expense ratios help maximize long-term returns by minimizing fees.
- Diversification: Some funds are more diversified than others. If you're seeking specific exposure to aerospace and defense stocks, consider funds that focus exclusively on these sectors. If you want broader global exposure, funds like VTWSX might be more appropriate.
- Fund Strategy: Some mutual funds actively manage portfolios (like FSDAX), while others passively track an index (like ITA). Consider your preference for active versus passive management when selecting a fund.
- Global Exposure: If you want exposure to global aerospace and defense companies, look for funds with international investments, such as VTWSX, which includes companies like BAE Systems (UK) in addition to U.S.-based firms.
Popular Q&A on Investing in Defense and Aerospace Mutual Funds
Here are some frequently asked questions (FAQs) that investors typically have when considering defense and aerospace mutual funds. These insights will help you better understand how to approach investing in this sector.
1. What are the risks of investing in defense and aerospace mutual funds?
Answer: While defense and aerospace stocks tend to be more stable due to government contracts and technological advancements, there are still risks to consider:
- Geopolitical Risks: Tensions between countries or regions can significantly affect the defense industry. For example, rising conflicts or defense spending cuts can impact revenue growth for defense companies.
- Budget Cuts: Governments occasionally reduce defense budgets, which can result in reduced contracts or lower sales for aerospace and defense companies.
- Technological Change: Companies in this sector are highly dependent on technological advancements. Failure to innovate or meet the demands of military and aerospace applications can hinder growth.
- Market Volatility: As with any sector, the broader market volatility can also affect defense and aerospace stocks, especially during recessions or economic slowdowns.
2. How do I know if a mutual fund is a good fit for me?
Answer: To determine if a mutual fund is a good fit for your portfolio, consider the following:
- Investment Objectives: Make sure the fund aligns with your investment goals, such as growth, income, or stability. If you're seeking long-term growth and exposure to the defense sector, a fund like FSDAX may be suitable.
- Risk Tolerance: Understand your risk tolerance. While defense stocks can be relatively stable, the aerospace sector can be more volatile, particularly in commercial aviation.
- Expense Ratios: Low expense ratios are key to maximizing your returns. Funds like XAR and ITA offer competitive fees, making them cost-effective options for long-term investors.
- Diversification: If you're looking to limit your exposure to a single sector, a fund that focuses exclusively on aerospace and defense may be a better fit. However, if you prefer global exposure, consider funds like VTWSX.
3. Can I expect dividends from defense and aerospace mutual funds?
Answer: Many defense and aerospace mutual funds provide dividends, especially those that invest in established defense contractors like Lockheed Martin, Northrop Grumman, and Raytheon Technologies. These companies often distribute dividends due to their stable cash flow from government contracts. However, the amount and frequency of dividends will depend on the specific mutual fund and its holdings.
For example, FSDAX and PPA may offer dividends depending on their portfolio’s focus on dividend-paying defense stocks. If receiving regular income is a priority for you, look for funds with a history of strong dividend payouts.
4. Are there any tax advantages to investing in defense and aerospace mutual funds?
Answer: There are no specific tax advantages unique to defense and aerospace mutual funds. However, you can consider these general tax-related factors:
- Tax Efficiency: Some funds, especially index funds or ETFs like ITA and XAR, tend to be more tax-efficient due to lower turnover rates. This means fewer taxable events, such as capital gains distributions.
- Tax-Deferred Accounts: If you invest in defense and aerospace mutual funds through tax-deferred accounts, like an IRA or 401(k), you can defer taxes on dividends and capital gains until you withdraw the funds.
- Dividend Taxation: Dividend payouts from defense and aerospace stocks are subject to tax, typically at a qualified dividend rate, which is lower than ordinary income tax rates.
5. How do geopolitical events affect defense and aerospace mutual funds?
Answer: Geopolitical events can have a substantial impact on defense and aerospace stocks. Since many of these companies depend heavily on government contracts, geopolitical tensions can either boost demand for defense products (e.g., during times of conflict) or lead to cuts in military budgets during peaceful periods.
For example, if tensions rise between two nations, there could be an increase in defense spending, benefiting companies like Lockheed Martin or Boeing. Conversely, political decisions, such as budget cuts or changes in defense policies, can negatively affect the performance of these companies.
Funds like PPA and XAR are directly exposed to these geopolitical shifts, so it’s important to monitor the global political landscape when investing in these funds.
6. What’s the difference between ETFs and mutual funds for defense and aerospace stocks?
Answer: Both ETFs and mutual funds can provide exposure to defense and aerospace stocks, but they have key differences:
- Management Style: Mutual funds, such as FSDAX, are often actively managed, meaning fund managers make decisions on buying and selling stocks. ETFs, like ITA and PPA, are generally passively managed and track a specific index, offering lower management fees.
- Liquidity: ETFs trade on the stock exchange like individual stocks, providing greater liquidity. You can buy or sell shares of an ETF throughout the trading day. Mutual funds, however, can only be bought or sold at the end of the trading day at the net asset value (NAV).
- Cost: ETFs tend to have lower expense ratios compared to actively managed mutual funds. For example, ITA has a low expense ratio of 0.42%, whereas FSDAX has a higher expense ratio of 0.70%, reflecting its active management.
If you prefer lower costs and flexibility, ETFs might be a better choice. If you want professional management of your investments and are willing to pay slightly higher fees, then mutual funds like FSDAX may be ideal.
7. How can I invest in international defense and aerospace stocks?
Answer: If you're interested in global exposure to the defense and aerospace sectors, you can choose mutual funds or ETFs that include international defense contractors, such as BAE Systems (UK) and Thales (France). Funds like VTWSX offer global diversification, including exposure to both U.S. and international aerospace and defense companies.
Alternatively, XAR and ITA may provide some international exposure but focus primarily on U.S.-based companies. Look for funds that include global defense contractors in their portfolios if you want diversified international exposure.
Summary
Defense and aerospace stocks can be a stable, long-term investment choice due to government contracts, technological innovation, and growing global defense spending. The mutual funds and ETFs listed above provide excellent opportunities for exposure to this sector in 2025.
Whether you prefer passive investment strategies, such as those offered by ITA or PPA, or active management through FSDAX, there are plenty of options for investors looking to benefit from the continued growth of the defense and aerospace industries.
Always keep in mind factors like expense ratios, diversification, and the specific fund’s strategy to ensure the best fit for your investment goals.