MISL defense ETF tops ITA as $804 million fund rides spending surge

Defense spending is surging globally, and two ETFs are offering investors contrasting paths to the sector.

The First Trust Indxx Aerospace & Defense ETF (MISL) has significantly outperformed the iShares U.S. Aerospace & Defense ETF (ITA) over the trailing 12 months as surging defense spending drives demand for tech-oriented contractors.

MISL's portfolio tilts heavily toward technology, with Palantir Technologies as its top holding at 9.24 percent, followed by GE Aerospace at 8.01 percent and Boeing at 7.78 percent, according to First Trust data. The fund holds 49 positions, with 83 percent allocated to industrials and 17 percent to technology.

MISL charges an expense ratio of 0.6 percent and has $804.5 million in assets under management, with a trailing dividend yield of 0.3 percent. ITA, by contrast, offers a lower-cost entry into the sector, tracking a broader index of established aerospace and defense companies. The global space economy is forecast to nearly triple by 2035, driven by falling launch costs and broadband satellite expansion, according to industry projections.

The outperformance of tech-heavy defense funds suggests investors are betting that future defense contracts will favor software, data analytics, and autonomous systems over traditional hardware. Global defense budgets are rising as governments prioritize military modernization, a trend that could reshape the competitive dynamics for decades.

Tech-Heavy Funds Lead the Rally

The divergence between MISL and ITA reflects a broader debate about where defense spending is headed. MISL's top holding, Palantir, is a data analytics company whose software is used by the U.S. military, sitting alongside traditional aerospace giants GE Aerospace and Boeing. The fund's technology allocation of 17 percent is significantly higher than most traditional defense ETFs.

The Tema Space Innovators ETF (NASA), which debuted in March 2026 and crossed $2.5 billion in assets within two months, offers an even narrower bet on space innovation, including direct SpaceX access through a special purpose vehicle. NASA charges an expense ratio of 0.75 percent and has attracted significant inflows as investors seek pure-play space exposure.

Broader Defense Ecosystem in Focus

The SPDR S&P Kensho Future Security ETF (FITE), with $155 million in assets and a 0.45 percent expense ratio, tracks companies focused on cybersecurity, drones, and space technology. About 30 percent of its portfolio is in aerospace and defense names, with top holdings including Planet Labs, Redwire, and Palo Alto Networks.

The U.S. 10-year Treasury yield has remained elevated as defense spending adds to fiscal pressure, while the U.S. dollar index has strengthened on expectations of higher government expenditure. The CBOE Volatility Index has held near its 12-month median, suggesting the rotation into defense names is a structural shift rather than a避险 move.

For investors, the choice between these funds hinges on whether the defense spending surge will benefit traditional contractors or the technology companies embedding software into military systems. MISL's recent outperformance suggests the market is betting on the latter, but ITA's lower cost and broader diversification remain compelling for those seeking core sector exposure.

This article is for informational purposes only and does not constitute investment advice.