Defense Sector Surge Propels Aerospace ETF to New Heights

A powerful combination of heightened geopolitical tensions and a resurgent commercial aviation sector is fueling an extraordinary rally within the aerospace and defense industry. The iShares U.S. Aerospace & Defense ETF (ITA) is capturing significant gains from this unique market environment, driven by substantial increases in global defense spending and multi-billion dollar contracts. However, questions are emerging about the long-term viability of this impressive run.

Strategic Contracts and Manufacturing Expansion

Recent developments highlight the sector’s robust momentum. A landmark $13.5 billion warship agreement between the United Kingdom and Norway, finalized on August 31, exemplifies the extensive rearmament initiatives underway among NATO allies. Concurrently, Germany is amplifying its military production capabilities. The inauguration of a new Rheinmetall facility in Unterlüss marks a strategic push to significantly boost output of artillery ammunition, reinforcing Europe’s commitment to defense autonomy.

The commercial aviation side also shows vigorous recovery. Boeing reported a striking 63% jump in commercial aircraft deliveries for the second quarter of 2025. Despite this positive momentum, new U.S. tariffs implemented on August 1 present a potential headwind, possibly disadvantaging American defense firms while offering unexpected advantages to their European counterparts.

A Focused Investment in Industry Leaders

The ITA ETF offers concentrated exposure to the sector’s largest players, holding just 42 securities. The fund is heavily weighted towards its top ten holdings. GE Aerospace leads the allocation with a commanding portfolio weight exceeding 20%, followed by RTX Corp at 15.2% and Boeing at 9.3%. Recent performance has been particularly strong for Lockheed Martin, which saw its shares advance by 8.2%, and General Dynamics, which climbed 4.3%.

Should investors sell immediately? Or is it worth buying iShares U.S. Aerospace & Defense ETF?

This strong performance was not universal across the portfolio. Howmet Aerospace and TransDigm Group both registered notable declines in August, with losses reaching as high as 12.7%. Nevertheless, the substantial gains from the fund’s largest constituents were more than sufficient to offset these setbacks.

Outlook: Sustained Growth or Cyclical Peak?

Year-to-date, the ITA ETF has delivered an exceptional return of over 36%, mirroring the powerful dynamics currently defining the aerospace and defense industry. Persistent global instability, coupled with pent-up demand in civilian air travel, suggests the potential for continued strength.

However, the fund’s considerable reliance on U.S. defense contractors and emerging trade policy risks linked to tariffs could act as constraints on future growth. For investors, the central consideration remains whether this represents a fundamental, long-term shift or a temporary cyclical peak.