European governments are pushing defense budgets higher than at any point since the Cold War, and three exchange-traded funds offer distinct ways to ride the spending cycle: the iShares U.S. Aerospace & Defense ETF (NYSEARCA:ITA | ITA Price Prediction), the First Trust Indxx Aerospace & Defense ETF (NASDAQ:MISL), and the Select STOXX Europe Aerospace & Defense ETF (NYSEARCA:EUAD). Each captures a different slice of the rearmament trade, from American primes selling F-35s and Patriot batteries through Foreign Military Sales to the European contractors winning record orders at home.
The backdrop is a multi-year procurement cycle. NATO members are racing to hit 2%+ GDP defense targets, the EU’s ReArm Europe initiative is funneling fresh capital toward continental producers, and ammunition stockpiles drained by aid to Ukraine still need to be rebuilt. The funds below approach that opportunity from three different angles, and they are not interchangeable.
EUAD: The Most Direct Bet on European Primes
EUAD is the cleanest way to own the companies whose order books are most directly tied to European defense budgets. The fund tracks the STOXX Europe Total Market Aerospace & Defense index and concentrates its exposure on names such as Rheinmetall, BAE Systems, Leonardo, Thales, Airbus, Saab, Hensoldt, and Dassault Aviation. These are the contractors building the tanks, artillery shells, frigates, fighters, and air defense systems that European governments are buying first under “Buy European” procurement preferences attached to EU funding.
The mechanism is straightforward. When Berlin commits to a special defense fund, when Poland orders K2 tanks alongside Leopard upgrades, when France accelerates Rafale production, the revenue lands on European balance sheets. U.S. primes participate through joint programs and FMS sales, but the marginal euro of incremental European spending tilts toward domestic suppliers.
Performance reflects how much of that thesis is already priced in as EUAD trades around $41 and is down roughly 2% year to date after a sharp run, with a one-year return near 10% that trails the U.S. defense complex. The recent pause comes after a multi-quarter rally, and the fund’s 4% gain over the past week coincided with renewed budget headlines from Brussels.
The tradeoff comes down to concentration and currency. EUAD leans on a relatively tight group of European defense names, which means U.S. investors pick up euro exposure that can either soften or amplify returns depending on where the dollar moves. Liquidity is another part of the equation. With roughly 384 trading days of history, the fund is younger and thinner than ITA, so position sizing carries more weight than it would in a deeper, more established market.
ITA: The Default Vehicle for U.S. Primes
ITA is the largest and most liquid aerospace and defense ETF available to U.S. investors, and it remains the simplest way to own the prime contractors that supply European militaries. RTX, Boeing, Lockheed Martin, Northrop Grumman, and General Dynamics anchor the portfolio. These companies sell the F-35s flying out of European bases, the Patriot batteries Germany and Poland are buying, the HIMARS launchers reshaping NATO’s eastern flank, and the Javelin and Stinger replacements that drained American inventories.
European rearmament reaches ITA through Foreign Military Sales contracts, co-production deals, and direct commercial sales. A Polish order for Apache helicopters or a German purchase of Chinook lift platforms shows up in the same revenue lines as Pentagon procurement. That makes ITA a hybrid bet on U.S. defense spending and allied buying patterns rather than a pure European play.
The fund charges a net expense ratio of 0.4 percent, which lands squarely in the middle of the category. Longer time frames tell a more interesting story. ITA is up about 34 percent over the past year, has returned roughly 112 percent over five years, and sits near a 290 percent gain over ten. The year‑to‑date move of less than 1 percent suggests that much of the rearmament narrative has already been priced into U.S. prime valuations.
The tradeoff shows up in the composition. ITA’s largest positions are diversified industrial conglomerates, so the pure defense signal gets diluted. Boeing’s commercial aviation business, RTX’s Pratt and Whitney engine segment, and Lockheed’s space operations all pull the portfolio away from a clean munitions or procurement theme. Investors looking for direct exposure to ammunition replenishment or European order flow end up with a blended product rather than a targeted one.
MISL: A Tilt Toward Munitions and Missile Makers
MISL tracks the Indxx Aerospace & Defense Index and uses a methodology that leans toward missile, munitions, and weapons-systems exposure rather than the diversified industrial mix of ITA. That tilt matters because the most acute supply gap in the Western defense base sits in consumables: 155mm shells, air defense interceptors, anti-tank missiles, and precision-guided munitions burned through during three years of Ukraine aid.
The investment logic starts with the shape of the demand cycle. NATO stockpile rebuilds, EU joint procurement of artillery rounds, and U.S. multi‑year ammunition contracts all point toward the same cluster of producers. A portfolio tilted toward those names captures the replenishment cycle far more sharply than a broad aerospace and defense index that mixes munitions exposure with airliners and space hardware.
MISL has moved in line with the broader U.S. defense complex. It trades near $ 43, has gained about 34 percent over the past year, and is up about 1 percent year to date. The nearly 6 percent pullback over the past month mirrors the broader step‑down in defense names following their recent highs.
Liquidity and size define the main tradeoff. MISL is smaller than ITA, with thinner volumes and wider spreads, so it works best as a complement to a core holding rather than a standalone anchor. The differences in methodology also mean performance can meaningfully diverge from ITA in either direction, which is part of the appeal for investors who want a more targeted expression of the replenishment theme.
Choosing Between the Three
The three funds line up neatly once you decide what part of the European rearmament story you want to own. EUAD speaks to investors who want direct exposure to the contractors winning the largest wave of new domestic orders and who are comfortable with a narrower basket and euro‑denominated returns. ITA works for investors who want a liquid core position tied to the global defense trade, including U.S. foreign military sales into Europe, without leaning too hard into any single geography. MISL appeals to investors who want to overweight the ammunition and missile replenishment cycle and tilt more heavily toward that segment than a generic aerospace and defense fund allows.
Macro conditions shape how bold that allocation should be. U.S. real GDP grew 2% in the first quarter of 2026 after a 0.5% reading in the final quarter of 2025. Slower growth makes it harder for NATO members to meet the 2% spending floor in absolute terms without raising their budgets. That pressure is exactly why European governments have shifted toward legislating multi‑year defense commitments instead of relying on annual appropriations. For investors, that legislative cadence is what turns a defense rally into a sustained spending cycle.
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