We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Bet on These Defense ETFs Amid Escalating Yemen War
Read MoreHide Full Article
Key Takeaways
Escalating Houthi attacks could lift demand for air-defense systems, missiles and radar technology.
Saudi Arabia's $142 billion U.S. defense agreement and nearly $2 billion package support contractor demand.
ETFs like NATO offer diversified exposure to defense primes positioned to benefit from rising orders.
The conflict in Yemen has spilled across Saudi Arabia's borders once again. Houthi rebels recently struck two airports inside the Kingdom, including an attack on the airport serving the Saudi capital that witnesses described as triggering an evacuation.
Riyadh's air defenses were tested in real time, underscoring a longstanding challenge for defense planners: the drone and missile threat from Yemen remains persistent, increasingly sophisticated and far from resolved.
For investors, this is a relevant signal. Escalating attacks of this kind tend to accelerate demand for weapons systems like interceptors, precision-guided munitions, radar, and integrated air and missile defense architectures, designed to stop them.
Naturally, defense majors that already hold direct weapons agreements with Saudi Arabia stand to see order growth, expanded backlogs, and stronger revenue visibility as the Kingdom is likely to replenish and upgrade its defensive stockpile. Against this backdrop, defense-focused exchange-traded funds (ETFs), which provide exposure to multiple prime contractors, offer a diversified way to capitalize on rising demand without betting on a single name.
But before identifying those funds, one must understand the connection between Saudi Arabia and the defense contractors — particularly those from the United States and the U.K. — and how the spiraling situation in Yemen benefits them.
The Saudi-Defense Contractor Connection
Saudi Arabia has long been one of the world's largest arms buyers, and its ties to American and British defense firms run deep.
On May 13, 2025, during President Donald Trump's visit to Riyadh, Washington and Riyadh signed a landmark $142 billion defense agreement.
The package involved contracts with more than a dozen U.S. defense firms to modernize the Saudi military, with upgrades spanning integrated air and missile defense systems, maritime security, space technologies and communications infrastructure. In July 2026, the United States approved an additional package worth nearly $2 billion for Saudi Arabia, featuring roughly 20,000 Advanced Precision Kill Weapon Systems guidance kits supplied via BAE Systems (BAESY - Free Report) to counter drone and missile threats.
Several defense primes are directly leveraged to this spending. For instance, London-based BAE Systems supplies precision guidance kits and combat systems to Saudi Arabia, while U.S.-based Lockheed Martin (LMT - Free Report) provides THAAD interceptors, Patriot PAC-3 missiles and F-35 fighter jets. RTX Corp. (RTX - Free Report) is a major supplier of Patriot systems and air-defense radars to the Kingdom, while Boeing (BA - Free Report) provides munitions, aircraft and sustainment.
As Houthi attacks escalate, demand for these defense products is likely to rise, driving order growth, backlog expansion and revenue generation for each.
Gaining Defense Exposure Through ETFs
Rather than picking individual winners, a prudent strategy is to hold a defense ETF. These funds provide broad exposure to the primes above while mitigating idiosyncratic, single-stock risk — a failed program, a contract dispute, or a guidance miss at one company won't derail the thesis.
Given the discussion above, investors seeking to benefit from rising Yemen-related demand can add the following funds to their portfolios, which will offer access to the contractors most likely to see higher order growth:
iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
With net assets of $11.92 billion, this fund provides exposure to U.S.-based aerospace and defense companies, including manufacturers of commercial and military aircraft. RTX holds the second spot in this fund, with a 15.99% weight, while BA holds the third spot with a 7.71% weight. LMT holds the sixth spot with a 4.59% weight.
ITA charges 37 basis points (bps) in fees. It traded at a good volume of 1.06 million shares in the last trading session.
State Street SPDR S&P Aerospace & Defense ETF (XAR - Free Report)
This fund, with assets under management (AUM) of $5.49 billion, offers exposure to large, mid and small-cap aerospace-defense stocks. LMT holds the eighth spot in this fund with a 2.93% weight. RTX holds the 18th spot in this fund, with a 2.81% weight, while BA holds the 19th spot with a 2.80% weight.
XAR charges 35 bps in fees. It traded at a volume of 0.33 million shares in the last trading session.
This fund, with net asset value of $35.90, offers exposure to aerospace and defense companies headquartered in North Atlantic Treaty Organization (“NATO”) member countries. LMT holds the eighth spot in this fund with a 2.93% weight. RTX holds the first spot in this fund, with an 8.55% weight, while BA holds the fourth spot with a 7.41% weight. LMT holds the seventh spot in this fund, with a 4.90% weight, while BAESY holds the 10th spot with a 3.93% weight.
NATO charges 35 bps in fees. It traded at a volume of 0.01 million shares in the last trading session.
View the Zacks #1 Rank List
Image: Bigstock
Bet on These Defense ETFs Amid Escalating Yemen War
Key Takeaways
The conflict in Yemen has spilled across Saudi Arabia's borders once again. Houthi rebels recently struck two airports inside the Kingdom, including an attack on the airport serving the Saudi capital that witnesses described as triggering an evacuation.
Riyadh's air defenses were tested in real time, underscoring a longstanding challenge for defense planners: the drone and missile threat from Yemen remains persistent, increasingly sophisticated and far from resolved.
For investors, this is a relevant signal. Escalating attacks of this kind tend to accelerate demand for weapons systems like interceptors, precision-guided munitions, radar, and integrated air and missile defense architectures, designed to stop them.
Naturally, defense majors that already hold direct weapons agreements with Saudi Arabia stand to see order growth, expanded backlogs, and stronger revenue visibility as the Kingdom is likely to replenish and upgrade its defensive stockpile. Against this backdrop, defense-focused exchange-traded funds (ETFs), which provide exposure to multiple prime contractors, offer a diversified way to capitalize on rising demand without betting on a single name.
But before identifying those funds, one must understand the connection between Saudi Arabia and the defense contractors — particularly those from the United States and the U.K. — and how the spiraling situation in Yemen benefits them.
The Saudi-Defense Contractor Connection
Saudi Arabia has long been one of the world's largest arms buyers, and its ties to American and British defense firms run deep.
On May 13, 2025, during President Donald Trump's visit to Riyadh, Washington and Riyadh signed a landmark $142 billion defense agreement.
The package involved contracts with more than a dozen U.S. defense firms to modernize the Saudi military, with upgrades spanning integrated air and missile defense systems, maritime security, space technologies and communications infrastructure. In July 2026, the United States approved an additional package worth nearly $2 billion for Saudi Arabia, featuring roughly 20,000 Advanced Precision Kill Weapon Systems guidance kits supplied via BAE Systems (BAESY - Free Report) to counter drone and missile threats.
Several defense primes are directly leveraged to this spending. For instance, London-based BAE Systems supplies precision guidance kits and combat systems to Saudi Arabia, while U.S.-based Lockheed Martin (LMT - Free Report) provides THAAD interceptors, Patriot PAC-3 missiles and F-35 fighter jets. RTX Corp. (RTX - Free Report) is a major supplier of Patriot systems and air-defense radars to the Kingdom, while Boeing (BA - Free Report) provides munitions, aircraft and sustainment.
As Houthi attacks escalate, demand for these defense products is likely to rise, driving order growth, backlog expansion and revenue generation for each.
Gaining Defense Exposure Through ETFs
Rather than picking individual winners, a prudent strategy is to hold a defense ETF. These funds provide broad exposure to the primes above while mitigating idiosyncratic, single-stock risk — a failed program, a contract dispute, or a guidance miss at one company won't derail the thesis.
Given the discussion above, investors seeking to benefit from rising Yemen-related demand can add the following funds to their portfolios, which will offer access to the contractors most likely to see higher order growth:
iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
With net assets of $11.92 billion, this fund provides exposure to U.S.-based aerospace and defense companies, including manufacturers of commercial and military aircraft. RTX holds the second spot in this fund, with a 15.99% weight, while BA holds the third spot with a 7.71% weight. LMT holds the sixth spot with a 4.59% weight.
ITA charges 37 basis points (bps) in fees. It traded at a good volume of 1.06 million shares in the last trading session.
State Street SPDR S&P Aerospace & Defense ETF (XAR - Free Report)
This fund, with assets under management (AUM) of $5.49 billion, offers exposure to large, mid and small-cap aerospace-defense stocks. LMT holds the eighth spot in this fund with a 2.93% weight. RTX holds the 18th spot in this fund, with a 2.81% weight, while BA holds the 19th spot with a 2.80% weight.
XAR charges 35 bps in fees. It traded at a volume of 0.33 million shares in the last trading session.
Themes Transatlantic Defense ETF (NATO - Free Report)
This fund, with net asset value of $35.90, offers exposure to aerospace and defense companies headquartered in North Atlantic Treaty Organization (“NATO”) member countries. LMT holds the eighth spot in this fund with a 2.93% weight. RTX holds the first spot in this fund, with an 8.55% weight, while BA holds the fourth spot with a 7.41% weight. LMT holds the seventh spot in this fund, with a 4.90% weight, while BAESY holds the 10th spot with a 3.93% weight.
NATO charges 35 bps in fees. It traded at a volume of 0.01 million shares in the last trading session.