Invesco Aerospace & Defense ETF

PPA

Market cap $8.38B

The U.S. defense sector is entering a new AI-driven revolution, with $1.5 trillion in proposed 2027 spending and $13.4 billion for autonomous systems. Rapid advances in cheap, smart, and autonomous weapons are fundamentally changing warfare economics and driving massive investment inflows into defense technology.

Since the start of Operation Epic Fury at the end of February, Brent crude oil prices have risen as high as $150 a barrel as the Strait of Hormuz has been effectively closed by Iran.  Panic over supply is driving energy prices higher, and consumers are experiencing it at the pump with soaring gasoline prices.

Defense ETFs like ITA gain traction as Middle East tensions persist, boosting demand for missiles, air defense systems and military production.

Major U.S. defense stocks failed to outperform during the Iran conflict, tracking the S&P 500's negative performance instead. In this article, I explore several reasons for their apparent failure to serve as a meaningful hedge during wartime.

NATO's "5% of GDP" defense spending target by 2035 will send investment into this sector soaring. The U.S. Department of Defense's budget proposal for 2027 is likely to exceed $1 trillion.

Rising geopolitical tensions and Trump's defense push are fueling a long-term rearmament trend. One can explore ETFs to benefit from this outlook.

The decisive, lethal, and comparatively brief strategic military strikes executed by President Trump and Secretary of War Hegseth have once again elevated the profile of US military supremacy.

Key Takeaways: Defense ETFs now hold $42 billion in assets with $9 billion in inflows this year amid rising geopolitical tensions. Eight out of nine new defense ETF launches since 2025 have been global or international offerings.

The Invesco Aerospace & Defense ETF (NYSEARCA:PPA) is built on a straightforward premise: wars and geopolitical tension are good for defense contractors.

Aerospace and defense stocks, including SHLD and ITA, have declined since the Iran conflict despite heightened geopolitical risk. ITA underperformed due to higher commercial exposure and lack of European defense holdings, while SHLD's diversified defense focus limited losses. Macroeconomic concerns, inflation, and fixed-price contract risks are pressuring near-term profitability and valuations across the sector.