Defense ETFs to Watch Before Q4 Earnings Season Unfolds

Core Insights - The defense sector has shown remarkable resilience and outperformance in 2025, driven by global conflicts and increased NATO spending, contrasting with broader market volatility [1][9] - The upcoming fourth-quarter earnings season is expected to validate the conversion of government contracts into tangible growth and shareholder value for defense companies [2] Defense Sector Performance - Defense stocks are benefiting from significant upward revisions in global military spending, with NATO committing to 5% of GDP on defense by 2035 and notable increases in defense budgets from countries like India and China [3][4] - Lockheed Martin (LMT) has raised its 2025 sales outlook, indicating strong sales expectations for the fourth quarter, supported by a growing backlog of orders [5] Technological Advancements - The rise of AI and technology adoption in defense, including cybersecurity and sensor systems, is driving revenue growth for diversified defense companies like L3Harris Technologies (LHX) and RTX Corp. (RTX) [6] - This tech-driven growth provides stability and protection against broader market volatility, making defense ETFs attractive for investors [6] Earnings Expectations - The Aerospace sector, which includes defense stocks, is projected to report earnings growth of 63.6% with a revenue increase of 12.2%, significantly outpacing the overall S&P 500 earnings growth of 8.7% [8] Defense ETFs Overview - The following defense ETFs are highlighted for their potential to benefit from the expected strong quarterly results: - Global X Defense Tech ETF (SHLD): Net assets of $6.98 billion, top holdings include LMT (8.38%), RTX (7.54%), and General Dynamics (GD) (7.19%), with a 91.1% increase over the past year [10] - SPDR S&P Aerospace & Defense ETF (XAR): Net assets of $5.95 billion, top holdings include Karman Holdings (4.70%), Rocket Lab (4.33%), and Kratos Defense (4.19%), with a 60.3% increase over the past year [11] - iShares U.S. Aerospace & Defense ETF (ITA): Net assets of $14.84 billion, top holdings include GE Aerospace (19.88%), RTX (15.67%), and Boeing (8.44%), with a 51.4% increase over the past year [12] - Invesco Aerospace & Defense ETF (PPA): Market value of $7.88 billion, top holdings include Boeing (9.11%), RTX (8.40%), and LMT (8.20%), with a 45.9% increase over the past year [13]