State Street SPDR S&P Aerospace & Defense ETF

XAR

Market cap $6.26B

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.

NATO's European allies and Canada increased their defense outlays by roughly 20% in 2025 alone.

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.

Designed to provide broad exposure to the Industrials ETFs category of the market, the State Street SPDR S&P Aerospace & Defense ETF (XAR) is a smart beta exchange traded fund launched on 09/28/2011.

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.

US drone defense capabilities lag in small UAVs and USVs, prompting urgent investment as asymmetric threats escalate. Leidos and L3Harris offer diversified, lower-risk exposure, while AeroVironment leads pure-play drone names by maturity and product breadth.

President Trump wants to significantly increase defense spending. The current Middle East war is using vast amounts of weaponry.

Why should oil and gas companies drill? Prices have been — and still are — too low for them to bother.