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Fragile Gaza Ceasefire Puts Defense ETFs in the Spotlight
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The fragile ceasefire in Gaza, which took effect on Oct. 10, 2025, faced its most serious test over the past weekend, as a resurgence of violence put the conflict back in the global spotlight. This has naturally intensified investor focus on defense stocks and related exchange-traded funds (ETFs).
This is because geopolitical instability, like the conflict in Gaza, which poses a threat to regional peace, tends to enhance the business prospects of defense contractors as governments increase military spending. The recent escalation serves as a stark reminder of this dynamic, casting a direct spotlight on companies involved in producing the weapons and technologies that power modern warfare.
More Than Just a Conflict: Broader Tailwinds for Defense
Companies that supply military hardware to Israel, particularly U.S.-based firms, see their order books and stock prices potentially boosted by sustained conflict or a perceived need to replenish stockpiles. Major defense contractors, including Lockheed Martin ((LMT - Free Report) ), the supplier of F-35 fighter jets; Boeing ((BA - Free Report) ), which provides F-15 fighter jets; and RTX Corp. ((RTX - Free Report) ), a key participant in the Iron Dome system, have been cited as playing a significant role in supplying arms and components to Israel.
This direct involvement makes them particularly sensitive to the conflict’s duration and intensity. No doubt, the 1.8%, 2.2% and 1.8% hike observed in the share price of RTX, LMT and BA, respectively, in the last trading session was largely driven by the latest ceasefire violation by Israel.
While the situation in Gaza is a significant driver, the defense ETFs are also being fueled by a confluence of powerful, longer-term factors like resilient demand, technological innovation and surging defense budgets.
Defense spending is mostly considered non-cyclical. Governments maintain defense budgets regardless of the economic climate, providing defense contractors with predictable revenue streams. This offers a degree of stability that is attractive to investors, especially during times of broader market volatility.
The defense sector is experiencing a revolution driven by artificial intelligence (AI), autonomous drones, and cyber warfare. These technologies are transforming modern warfare and driving defense department spending, creating significant growth opportunities for companies at the forefront of innovation.
Governments worldwide are significantly increasing military spending. In the United States, the recently enacted "One Big Beautiful Bill Act" (OBBB) injected an additional $150 billion in new funding for national security and defense priorities on top of the already substantial annual defense budget.
On the other hand, in June 2025, the North Atlantic Treaty Organization (“NATO”) members agreed to a new target to spend 5% of their GDP on defense and security by 2035, marking a significant increase from the previous benchmark of 2%, which was set in 2014. With America being the largest weapon supplier in the world, this enhanced NATO spending should fuel U.S.-based defense manufacturers manifold.
This powerful combination of persistent geopolitical tensions, expanding government budgets, and transformative innovation has positioned the defense sector for sustained growth, making defense ETFs a strategic consideration for portfolios. The Gaza narrative has only intensified this growth prospect.
Defense ETFs in Spotlight
For investors looking to capitalize on this outlook, a diversified approach through ETFs provides exposure to a basket of leading companies. Here are some of the prominent defense ETFs available to investors, particularly those holding BA, RTX, and LMT in their top holdings:
This fund, with net assets worth $5.10 billion, offers exposure to global defense technology companies. Its top three holdings constitute RTX (7.64%) and Lockheed Martin (7.44%).
SHLD has gained 79.8% year to date. The fund charges 50 bps in fees.
This fund, with net assets worth $12.09 billion, provides exposure to U.S. companies that manufacture commercial and military aircraft, as well as other defense equipment. Its top five holdings include RTX (14.46%), BA (8.03%), and LMT (4.63%).
ITA has gained 42.7% year to date. The fund charges 38 bps in fees.
This fund, with net asset value of $155.03 as of Oct. 20, 2025, provides exposure to companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Its top five holdings include Boeing (7.84%), RTX (7.74%) and Lockheed Martin (7.29%).
PPA has gained 35.7% year to date. It charges 58 bps in fees.
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Fragile Gaza Ceasefire Puts Defense ETFs in the Spotlight
The fragile ceasefire in Gaza, which took effect on Oct. 10, 2025, faced its most serious test over the past weekend, as a resurgence of violence put the conflict back in the global spotlight. This has naturally intensified investor focus on defense stocks and related exchange-traded funds (ETFs).
This is because geopolitical instability, like the conflict in Gaza, which poses a threat to regional peace, tends to enhance the business prospects of defense contractors as governments increase military spending. The recent escalation serves as a stark reminder of this dynamic, casting a direct spotlight on companies involved in producing the weapons and technologies that power modern warfare.
More Than Just a Conflict: Broader Tailwinds for Defense
Companies that supply military hardware to Israel, particularly U.S.-based firms, see their order books and stock prices potentially boosted by sustained conflict or a perceived need to replenish stockpiles. Major defense contractors, including Lockheed Martin ((LMT - Free Report) ), the supplier of F-35 fighter jets; Boeing ((BA - Free Report) ), which provides F-15 fighter jets; and RTX Corp. ((RTX - Free Report) ), a key participant in the Iron Dome system, have been cited as playing a significant role in supplying arms and components to Israel.
This direct involvement makes them particularly sensitive to the conflict’s duration and intensity. No doubt, the 1.8%, 2.2% and 1.8% hike observed in the share price of RTX, LMT and BA, respectively, in the last trading session was largely driven by the latest ceasefire violation by Israel.
While the situation in Gaza is a significant driver, the defense ETFs are also being fueled by a confluence of powerful, longer-term factors like resilient demand, technological innovation and surging defense budgets.
Defense spending is mostly considered non-cyclical. Governments maintain defense budgets regardless of the economic climate, providing defense contractors with predictable revenue streams. This offers a degree of stability that is attractive to investors, especially during times of broader market volatility.
The defense sector is experiencing a revolution driven by artificial intelligence (AI), autonomous drones, and cyber warfare. These technologies are transforming modern warfare and driving defense department spending, creating significant growth opportunities for companies at the forefront of innovation.
Governments worldwide are significantly increasing military spending. In the United States, the recently enacted "One Big Beautiful Bill Act" (OBBB) injected an additional $150 billion in new funding for national security and defense priorities on top of the already substantial annual defense budget.
On the other hand, in June 2025, the North Atlantic Treaty Organization (“NATO”) members agreed to a new target to spend 5% of their GDP on defense and security by 2035, marking a significant increase from the previous benchmark of 2%, which was set in 2014. With America being the largest weapon supplier in the world, this enhanced NATO spending should fuel U.S.-based defense manufacturers manifold.
This powerful combination of persistent geopolitical tensions, expanding government budgets, and transformative innovation has positioned the defense sector for sustained growth, making defense ETFs a strategic consideration for portfolios. The Gaza narrative has only intensified this growth prospect.
Defense ETFs in Spotlight
For investors looking to capitalize on this outlook, a diversified approach through ETFs provides exposure to a basket of leading companies. Here are some of the prominent defense ETFs available to investors, particularly those holding BA, RTX, and LMT in their top holdings:
Global X Defense Tech ETF ((SHLD - Free Report) )
This fund, with net assets worth $5.10 billion, offers exposure to global defense technology companies. Its top three holdings constitute RTX (7.64%) and Lockheed Martin (7.44%).
SHLD has gained 79.8% year to date. The fund charges 50 bps in fees.
iShares U.S. Aerospace & Defense ETF ((ITA - Free Report) )
This fund, with net assets worth $12.09 billion, provides exposure to U.S. companies that manufacture commercial and military aircraft, as well as other defense equipment. Its top five holdings include RTX (14.46%), BA (8.03%), and LMT (4.63%).
ITA has gained 42.7% year to date. The fund charges 38 bps in fees.
Invesco Aerospace & Defense ETF ((PPA - Free Report) )
This fund, with net asset value of $155.03 as of Oct. 20, 2025, provides exposure to companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Its top five holdings include Boeing (7.84%), RTX (7.74%) and Lockheed Martin (7.29%).
PPA has gained 35.7% year to date. It charges 58 bps in fees.