Defense & Aerospace ETFs nearly doubled in three years. September's losses came from different names

On Tuesday, September 8, GE Aerospace, the jet-engine maker and the largest holding in the iShares U.S. Aerospace & Defense ETF AITA, agreed to pay $11.75 billion for Consolidated Precision Products, a privately held caster of the turbine parts that keep commercial and military engines running. It was a capacity purchase, not a new fighter award. Howmet Aerospace, which makes those same engine and airframe components, fell 10.7% that session. The next day, Howmet chief executive John Plant said he was "fine" with the deal, even as meeting demand for engine parts is "testing us."

By Monday, September 21, that week sat inside a broader repricing.

AITA still holds GE as a 20.4% position and RTX, the missiles, engines, and avionics group, at 16.4%. Together they are 37% of the fund. Over the past month AITA lost 9.9%. Over three years it had returned 98.7%. Year to date it is down 0.1%. The SPDR S&P 500 ETF ASPY is up 13.4% in 2026.

The core U.S. aerospace and defense funds fell together in September. The names that did the damage depended on how each fund is built.

Three U.S. books, three products

The category now includes 26 ETFs, some of them cybersecurity or drone sleeves that will not move with the primes. The decision that still matters most is how the oldest U.S. funds build the same industry.

AITA launched in 2006, holds $12.5 billion, charges 0.37%, and lists 48 holdings. GE, RTX, and Boeing, the commercial-jet and defense manufacturer, are 45% of assets. The top ten are 74.8%. Honeywell Aerospace, listed on its own after a June spin-off, is already 3.9%. This is a large-company U.S. aerospace and defense book.

The Invesco Aerospace & Defense ETF BPPA is older (October 2005) and more expensive at 0.58%, with $7.62 billion and 62 holdings. It tracks the SPADE Defense Index of companies the issuer describes as systematically important to U.S. defense, homeland security, and government space. RTX is the largest position at 8.2%. The top ten are 53.6%. It shares 36 names with AITA and 68.7% of weight, so it is the closer cousin, with a much smaller GE line (6.8%) and an 11.5% sleeve in technology names that AITA barely touches.

The State Street SPDR S&P Aerospace & Defense ETF AXAR is the construction counterweight. It launched in 2011, charges 0.35%, holds $6.13 billion, and tracks the S&P Aerospace & Defense Select Industry Index with a modified equal-weight approach across large, mid, and small caps. RTX is still first, at 3.3%. Archer Aviation is second, at 3.2%. The top ten are 30.8%. Forty-five companies sit in both AITA and AXAR, covering 90% of AITA's names, but weight overlap is only 49.3%. GE is 6.85 times larger in the iShares fund.

Once the S&P index classifies a company as aerospace and defense, AXAR tries to size the names alike, whether the company builds engines or electric aircraft.

Returns as of Monday, September 21; holdings as of September 20 or 21. The same month produced a 9.9% loss in the concentrated U.S. fund, an 11.2% loss in the equal-weight fund, and a 5.5% loss in the newer global active fund.

Over three years the established trio still looks like a boom. AXAR returned 110%, AITA 98.7%, BPPA 97.4%, against 77.3% for ASPY. 2026 is the digestion: all three U.S. core funds are roughly flat to slightly up, while the S&P 500 fund kept climbing. AITA trades 16.7% below its 52-week high of $256.60; AXAR is 19.0% below $297.79; ASPY is 1.5% below its own high.

September followed the weighting rules

From the August 18 close through September 18, AITA fell 15.2% on price. Using current weights, GE dropped 16.2% and subtracted 3.3 percentage points. RTX dropped 14.0% and subtracted 2.3 percentage points. Howmet dropped 21.5% and subtracted 1.0 percentage point. Boeing dropped 11.1% and subtracted 0.9 percentage point; it is 7.7% of AITA and is down 8.6% in 2026. GE and RTX did more of the damage.

AXAR fell 17.4% over that same window, and the hits were scattered because the weights are. Karman Holdings, a 2.3% position, dropped 40%. Axon Enterprise, a 3.1% position, dropped 28%. VSE, a 3.1% position, dropped 26%. Kratos Defense, a 2.6% position, dropped 23%. No single name dominated the way GE dominates AITA. The equal-weight design simply owned more of the smaller names that fell furthest.

BPPA fell 12.5% in the window, less than either peer, because GE is a 6.8% line rather than a 20% line. RTX was still the largest drag, at 1.1 percentage points.

The engine-and-components complex that led the three-year run, and the smaller aerospace names that equal-weight holds, were marked down together. Over the past month, holders pulled $280 million from AITA and $71 million from AXAR. CSHLD was nearly unchanged on flows, with $1.8 million of net outflows.

Palantir, Europe, and a $4.3 billion active fund

The Global X Defense Tech ETF CSHLD is the product that made defense feel like a technology allocation. It launched on September 11, 2023, now holds $7.14 billion, charges 0.50%, and tracks the Global X Defense Tech Index. Palantir Technologies, the software company, is 10.8%. The next four names are RTX, General Dynamics, Lockheed Martin, and Northrop Grumman. Then the book goes overseas: BAE Systems, Hanwha Aerospace, Rheinmetall, Thales, Leonardo. There is no GE in the top 15, and no Boeing.

That is why CSHLD and AITA are not substitutes. They share 14 holdings and 32% of weight. Palantir returned 52% over three months; CSHLD itself returned 3.7% over that stretch, while AITA fell 9.1%. Over one year the tech-and-allies mix has lagged: CSHLD is down 5.2%, AITA is up 5.6%. Over three years, roughly the life of the Global X fund, CSHLD returned 156%.

Europe is a separate cash-flow stream, and the liquid way to own it is concentrated. The Select STOXX Europe Aerospace & Defense ETF CEUAD launched in October 2024, holds $1.10 billion, and lists 23 names.

Year to date CEUAD is up 1.6%; over one year it is down 4.1%. Over three months it is up 2.2%, the opposite direction from AITA.

The Themes Transatlantic Defense ETF NATO is the rules-based version of that idea: aerospace and defense companies headquartered in NATO countries, market-cap weighted with capping limits, 90 holdings, a 0.35% fee. RTX, Rolls-Royce, GE, Boeing, and Airbus lead the book. It has $94.6 million in assets.

The sleeper in the category is the iShares Defense Industrials fund BIDEF, an actively managed portfolio launched on May 18, 2025. In 16 months it has gathered $4.32 billion. It holds 141 names, charges 0.55%, and keeps RTX at 6.5% and Palantir at 5.0%. Rolls-Royce, Boeing, Airbus, and a 2.4% line in Space Exploration Technologies sit further down, with GE at only 1.8%. Year to date it is up 3.8%, the strongest 2026 result among the large funds, and it fell 5.5% over the past month, the mildest drawdown in that group. Sixteen months is too short to judge the process. The fund is already too big to treat as a footnote, especially in a month when the older U.S. trackers were seeing outflows.

The budgets did not go away

At the 2025 Hague Summit, NATO allies committed to invest 5% of GDP annually on defense by 2035: 3.5% for core defense and 1.5% for related security spending. That is a decade-long policy path.

The European Defence Agency, in a July 16 release, said EU-27 defense spending reached €418 billion in 2025, up 20% from 2024, and projected €454 billion in 2026. That would be 2.4% of EU GDP, from 2.2% in 2025. Defense R&D is expected to rise from €17 billion to €20 billion. Spending of that size can support European champions and U.S. suppliers that win export work.

U.S. commercial aerospace is a second cycle inside the same ETFs. Boeing is still a top-three holding in AITA and BPPA, and it is down 8.6% this year. GE’s engine installed base serves airline fleets and militaries at once.

A fund that looks like a Pentagon proxy on the fact sheet is, in practice, a blend of procurement, propulsion aftermarket, and factory execution.