^GSPC -0.35% The iShares U.S. Aerospace & Defense ETF (NYSEMKT:ITA) provides a low-cost, index-based approach to domestic defense, while the ARK Space & Defense Innovation ETF (NYSEMKT:ARKX) offers actively managed exposure to thematic space technologies.
Space exploration and defense represent two sides of the same aerospace coin, but these two exchange-traded funds (ETFs) approach the sector from vastly different orbits. One provides passive exposure to established U.S. aerospace giants, while the other actively hunts for disruptive innovators across the global space economy.
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield as of the close of trading on Nov. 10, 2026.
The iShares fund is significantly more affordable for investors, with an expense ratio of 0.37%. In contrast, the ARK fund charges 0.75%, reflecting the higher costs associated with its active management style and thematic research.
The iShares U.S. Aerospace & Defense ETF aims to replicate a benchmark index of U.S. companies involved in aviation and defense industries. Its portfolio contains 50 holdings and focuses 100% on the Aerospace & Defense sector. Its largest positions include GE Aerospace (NYSE:GE) at 20%, RTX (NYSE:RTX) at 17.2%, and Boeing (NYSE:BA) at 6.8%. This fund was launched in 2006.
The ARK Space & Defense Innovation ETF targets long-term capital appreciation by investing in domestic and international companies leading space exploration. It holds 45 stocks, with its largest positions including Space Exploration Technologies Corp. (NASDAQ:SPCX) at 10.6%, L3Harris Technologies (NYSE:LHX) at 7.5%, and Kratos Defense & ecurities Solutions (NASDAQ:KTOS) at 6.2%. Its sector weights are led by Industrials (63%), Technology (23%), and Consumer Cyclical (10%). This fund was launched in 2021.
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Aerospace and defense are some of the most intriguing sectors right now, given advances in planes, space vehicles, and the need for the U.S. to replenish and advance its defense arsenal. These two funds have key differences that investors need to examine before investing.
ITA, the iShares aerospace ETF, is invested solely in U.S. equities. It is mostly in large-cap stocks, about 56% of the portfolio, about two-thirds of which fit the value style classification. Some 35% of the portfolio is in mid-caps, which are skewed mostly toward growth stocks. The remaining 10% in small caps are also mostly growth stocks.
ITA is very heavily weighted toward its top 10 holdings, with more than three-quarters of the portfolio dedicated to that cohort. That brings concentration risk to the portfolio, but can also bring superior returns if management picks the right stocks to emphasize.
Performance-wise, ITA has returned an annualized 24.9% to its investors over the past three years, 15.9% over the preceding five years, and 13.5% over the last ten years.
The ARKX ETF, the ARK Space and Defense ETF, is 90% in U.S. stocks, with notable percentages dedicated to stocks in Japan (2.9%), France (1.7%), and Switzerland (1.3%).
The ETF is 51% in large caps, heavily focused on growth equities, with 22% in mid caps, also growth-focused, and 27% in small caps, also mostly growth stocks. There is some concentration risk, with 60% of the portfolio dedicated to its top 10 holdings.
Over the most recent 3- and 5-year time periods, ARKX has returned an annualized 32.3% and 8.2%, respectively. The fund has returned 7.2% since being formed in the summer of 2021.
So which is the better buy? While ARKX is the superior fund over the past three years, it returns nearly half as much to investors over the past five years. Its max drawdown of more than 42% suggests a lot of volatility. In this case, go with the fund offering less volatility and better returns over the longer time horizon. That's ITA.
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Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing, GE Aerospace, Kratos Defense & Security Solutions, L3Harris Technologies, RTX, Rocket Lab, and Space Exploration Technologies. The Motley Fool has a disclosure policy.
ITA vs ARKX: Can an Earthbound Aerospace ETF Outpace a Space Fund? was originally published by The Motley Fool
