Bet on These Defense ETFs Amid Renewed US-Iran Tensions

The latest escalation between the United States and Iran, marked by U.S. strikes on Iranian rocket launchers in the strategic Strait of Hormuz yesterday and subsequent retaliatory attacks on U.S. bases in Jordan today, has once again jolted the peace scenario in the Middle East. This renewed conflict creates a compelling investment opportunity in the defense industry. 

For investors looking to navigate this volatile landscape, exchange-traded funds (ETFs) offer a prudent and strategic approach to gain exposure to the defense industry's potential upside.

But before identifying which ETFs to buy, it's crucial to understand the roots of this feud, its impact on the defense industry, particularly defense contractors, and why ETFs may be a better investment choice than individual defense stocks.

The Feud & Defense Stocks Gaining From It

The current conflict stems from the effective closure of the Strait of Hormuz, a vital chokepoint through which approximately 20% of the world's oil once passed. Iran's demand for checks on tanker traffic and its reported deployment of sea mines prompted U.S. military action to secure the waterway. 

This prolonged standoff has been translating directly into a surge in demand for U.S. defense products and services, creating a multi-year procurement cycle for major contractors. This is not merely a temporary spike; the consumption and subsequent replenishment of advanced munitions ensure sustained revenue for defense companies.

U.S. defense stocks like Lockheed Martin LMT, RTX Corp. RTX and Northrop Grumman NOC are poised to benefit significantly from this escalation. 

For instance, Lockheed is witnessing increased demand for its Patriot missile systems, with over 800 interceptor missiles reportedly used in the conflict's early weeks during the onset of March. In July 2026, LMT won a $59 billion contract from Pentagon to triple Patriot missile production over the next seven years.

Similarly, RTX, which produces guidance systems for Patriot missiles, is also expected to benefit from the Patriot missile production contracts. The U.S. military is estimated to have fired more than 1,000 Tomahawk cruise missiles at targets in Iran since the start of Operation Epic Fury in late February 2026. To this end, it is important to mention that in mid-August RTX grabbed a $22.9 billion contract from the U.S. Navy to produce Tomahawk cruise missiles.

On the other hand, Northrop’s B-2 Stealth Bomber was used to strike Iranian nuclear complexes in a 34-hour round-trip mission this year. Although NOC has not recently won any contract involving the B-2 bomber, it signed two landmark, multi-year agreements worth $3 billion with the Pentagon and Lockheed Martin in August. The agreements will support efforts to triple PAC-3 MSE missile production and quadruple monthly deliveries of structural components for THAAD interceptors over seven years.

Why an ETF Is a Prudent Investment Choice

No doubt, individual defense contractors like those mentioned above stand to gain from these multi-billion-dollar procurement cycles. However, investing directly in these individual stocks exposes investors to company-specific risks, such as elevated valuations or an unexpected earnings miss.

This is precisely where the case for defense ETFs becomes compelling.

An investment in a defense ETF is a strategic bet on the entire industry, rather than a gamble on a single company's performance. This approach offers a "basket" of leading contractors and innovators, offering diversified exposure across the entire defense supply chain, from established prime contractors to emerging defense technology firms.

Defense ETFs to Buy

Against the backdrop of global defense spending projected to reach $2.6 trillion by the end of 2026, investors looking to capitalize on the latest U.S.-Iran altercation may consider adding the following ETFs to their portfolios:

iShares U.S. Aerospace & Defense ETF ITA 

This fund, with net assets worth $13.94 billion, offers exposure to 48 U.S. aerospace and defense companies, including manufacturers of commercial and military aircraft. GE Aerospace holds the first spot in this fund, with 21.60% weight, while RTX holds the second spot with 17.23% weight. LMT holds the fifth spot in this ETF, with 4.67% weightage, while NOC holds the seventh spot with 4.38% weightage. 

ITA has gained 8.5% year to date and charges 37 basis points (bps) in fees. It traded at a volume of 0.68 million shares in the last trading session and holds a Zacks ETF Rank #2 (Buy). 

Invesco Aerospace & Defense ETF PPA 

This fund, with a market value of $8.16 billion, offers exposure to 62 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. RTX holds the first spot in this fund, with 8.40% weightage, while LMT holds the fourth spot, with 6.59% weightage. NOC holds the sixth spot with 4.90% weightage. 

PPA has rallied 8.5% year to date and charges 58 bps in fees. It traded at a volume of 0.15 million shares in the last trading session and holds a Zacks ETF Rank #2. 

State Street SPDR S&P Aerospace & Defense ETF XAR 

This fund, with assets under management (AUM) worth $5.97 billion, offers exposure to 47 aerospace and defense companies. Axon Enterprise holds the first spot in this fund, with 3.75% weightage, while RTX holds the third spot with 3.33% weightage. LMT holds the eighth spot with 3.00% weightage, while NOC holds the 20th position with 2.79% weightage. 

XAR has risen 8.5% year to date and charges 35 bps in fees. It traded at a volume of 0.16 million shares in the last trading session and holds a Zacks ETF Rank #2.   

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