Sky-High Opportunities: Why ITA is a Strategic Bet on Aerospace & Defense Growth

In an era defined by geopolitical tension and a post-pandemic economic rebound, the aerospace and defense sector is experiencing a renaissance. The iShares U.S. Aerospace & Defense ETF (NYSEARCA: ITA) stands at the intersection of two powerful trends: surging global defense spending and a robust recovery in commercial aviation. With a portfolio stacked with industry titans like Raytheon Technologies (RTX), Boeing (BA), and Lockheed Martin (LMT), ITA offers investors a concentrated play on this dual-growth narrative. Here's why this ETF is primed to thrive—and the risks to watch.

The Tailwind: Defense Spending at Record Levels

Geopolitical instability—driven by Russia's invasion of Ukraine, China's military expansion, and Middle East conflicts—has ignited a global arms race. According to the Stockholm International Peace Research Institute (SIPRI), global defense spending hit $2.7 trillion in 2024, a 9.4% annual surge. The U.S., the world's largest defense spender, allocated $997 billion in 2024, with plans for continued modernization in hypersonic weapons, AI-driven systems, and cyber defense.

This spending boom has translated into strong earnings for ITA's holdings. Raytheon (RTX), a leader in missile systems and cybersecurity, saw Q1 2025 earnings grow 23% year-over-year. Similarly, Lockheed Martin (LMT), the Pentagon's top contractor, reported a 21% rise in defense revenue in 2024.

Commercial Aviation: Flying High Again

While defense is the headline, ITA's exposure to commercial aviation adds a second growth pillar. The sector is roaring back as travel demand rebounds. Boeing (BA) delivered 299 commercial aircraft in 2024, up from 100 in 2020, with orders for its 737 MAX and 787 Dreamliner exceeding production capacity. Airbus also reported record orders in 2024, reflecting airlines' need to upgrade aging fleets.

This recovery isn't just about planes—it's about parts, maintenance, and supply chains. ITA's holdings in General Electric's Aerospace division (a key supplier to both Boeing and Airbus) and Spirit AeroSystems (SPR) ensure investors benefit from the entire value chain.

Why ITA? The ETF's Strategic Edge

1. Concentrated Exposure to Industry Giants
ITA's top 10 holdings represent 68% of the portfolio, with heavy weights in RTX (13.6%), LMT (11.3%), and BA (9.8%). This concentration amplifies gains when defense budgets expand or airline orders surge—but also magnifies risks if any of these companies underperform.

2. Low Cost, High Beta
With an expense ratio of 0.40%, ITA is cheaper than peers like the SPDR S&P Aerospace & Defense ETF (XAR, 0.45%). Its high beta (1.3) means it outperforms in rising markets—up 14.3% year-to-date (YTD)—but may lag in downturns.

3. Post-Election Momentum
The November 2024 elections, which cemented a pro-defense administration, have further buoyed ITA. Analysts at Zacks note the ETF's Zacks ETF Rank #1 (Strong Buy) reflects its alignment with geopolitical and fiscal priorities.

Risks to Consider

• Sector Volatility: ITA's beta means it's sensitive to macroeconomic shifts. A cooling defense budget or a slowdown in airline deliveries could trigger sharp declines.
• Concentration Risk: Overweighting in BA (still grappling with 737 MAX lawsuits) and RTX (exposed to Pentagon contract delays) introduces company-specific risks.
• Valuation Stretch: While ITA's P/E of 22x is below the tech-heavy S&P 500's 28x, it's 40% above its 5-year average, leaving little margin for error if growth slows.

Investment Thesis: ITA as a High-Beta Play on Resilience

For investors seeking strategic exposure to aerospace & defense, ITA remains compelling:
- Defense Modernization: The U.S. and allies are investing in cutting-edge tech (e.g., hypersonic missiles, AI-driven logistics). RTX and LMT are core beneficiaries.
- Commercial Aviation Upswing: Airlines are replacing older jets, and ITA's supply-chain exposure (e.g., Spirit AeroSystems) capitalizes on this trend.
- Cost Efficiency: The 0.40% expense ratio ensures more of your gains stay in your pocket.

While risks exist, the geopolitical and economic tailwinds suggest ITA can deliver asymmetric upside. Consider a 3–5% allocation in a diversified portfolio, with a stop-loss at $140 (20% below recent highs) to mitigate volatility.

Final Take

In an era where defense spending and aviation recovery are twin pillars of growth, ITA offers a direct lever to these trends. Its concentration in industry leaders, low costs, and post-election momentum make it a buy for investors willing to tolerate volatility. As long as the skies remain crowded with fighter jets and commercial planes, ITA will keep climbing.

Actionable Idea: Buy ITA at current levels, with a target of $195–$200 within 12 months, driven by fiscal 2025 defense budgets and Boeing's production ramp-up.

Disclaimer: Past performance does not guarantee future results. Always conduct your own research before investing.