7 Best Defense ETFs to Buy for 2026: Top Picks for Investors

Defense Sector Draws Investor Attention

As global uncertainties persist, defense ETFs have become a focal point for investors seeking exposure to military spending. With governments across the world increasing budgets, these funds offer a way to tap into the sector's growth without picking individual stocks.

For 2026, financial analysts have shortlisted seven defense ETFs that stand out for their holdings, expense ratios, and historical returns. The list, compiled by money.usnews.com, includes a mix of broad-based funds and those focused on specific niches like cybersecurity and aerospace.

Top Picks for 2026

Among the seven, funds tracking major defense contractors like Lockheed Martin and Raytheon dominate. These companies benefit from long-term government contracts, providing steady revenue streams. Another notable pick is an ETF that emphasizes innovation in drone technology and space defense, reflecting modern warfare trends.

Investors are also looking at funds with lower fees, as expense ratios can eat into returns over time. The selected ETFs range from 0.20% to 0.60%, making them cost-effective options for both retail and institutional players.

Why Defense ETFs Are Gaining Traction

The appeal lies in the sector's resilience. Defense spending is often considered recession-proof, as governments prioritize national security even during economic downturns. With tensions in Eastern Europe and the Indo-Pacific, many nations are committing to multi-year budget increases.

However, analysts caution that this growth is not without risks. Political shifts could lead to spending cuts, and valuations in some defense stocks appear stretched after recent rallies. Investors are advised to diversify within the sector rather than concentrating on a single fund.

Performance and Outlook

Over the past year, defense ETFs have returned between 15% and 25%, outperforming broader indices. This momentum is expected to continue, driven by modernization programs and the need to replenish depleted stockpiles.

Yet, the cyclical nature of the industry means downturns can be sharp. For instance, a sudden peace deal or a change in government could trigger sell-offs. Experts suggest a long-term hold strategy to ride out volatility.

How to Choose the Right ETF

When selecting a defense ETF, experts recommend examining the fund's top holdings, expense ratio, and liquidity. A fund with a high concentration in a few mega-cap stocks may offer less diversification, while one with broader exposure could mitigate risk.

Another factor is the fund's track record during economic recessions. Defense ETFs have historically shown lower drawdowns compared to tech-heavy funds, making them a safer bet for risk-averse investors.

For those new to the sector, starting with a small allocation and gradually increasing it is a prudent approach.

What Lies Ahead

As 2026 approaches, defense ETFs are likely to remain in the spotlight. Investors should monitor geopolitical developments and defense policy announcements, as these could influence fund performance.

The coming months will be crucial for assessing whether the sector's growth is sustainable or if it is overheating. Keeping an eye on earnings reports from major contractors will provide clues.

In the meantime, the seven ETFs highlighted offer a balanced entry point for those looking to capitalize on defense spending trends. As always, conducting thorough research and consulting a financial advisor is recommended before making any investment decisions.