Key Takeaways:
European defense ministries pledged record spending, but the ETF that actually captured those dollars trades on the other side of the Atlantic.
The iShares U.S. Aerospace & Defense ETF surged 24.48% over the past year while the Select STOXX Europe Aerospace & Defense ETF dropped 3.16%, as European procurement flowed to American primes instead of local champions.
"European ministries ordered F-35s, Patriots, and HIMARS from U.S. primes because they needed equipment immediately, not promises of future European capacity," said Byron Callan, managing director at Capital Alpha Partners.
ITA's top three holdings — General Electric at 19.03%, RTX at 16.55%, and Boeing at 8.91% — supply the engines, missiles, and airframes behind the platforms European defense ministries are actually funding. EUAD, by contrast, concentrates on Airbus at 5.31%, MTU Aero Engines at 4.91%, Leonardo at 2.96%, BAE Systems at 2.64%, and Rheinmetall at 1.82%. The gap between rearmament announcements and actual contracts has been wider than headlines suggested.
For a $10,000 position, the trailing 12-month gap between the two funds is roughly $2,764 in favor of ITA. The swap logic holds as long as European ministries keep writing checks to U.S. primes faster than they build indigenous capacity — a dynamic that could shift if Rheinmetall's shell plants and Airbus's fighter programs absorb a larger share of budgets.
Where the Contract Flow Landed
Germany's F-35 buy, Poland's Apache and HIMARS orders, and munition backfills across NATO's eastern flank all flow into the revenue lines of Lockheed Martin, RTX, and General Dynamics — not Rheinmetall or Leonardo. ITA holds Lockheed Martin at 4.58%, General Dynamics at 4.77%, and Northrop Grumman at 4.58%, giving it direct exposure to every major U.S. prime benefiting from European procurement. The fund holds $13.49 billion in net assets at an expense ratio of 0.38%.
EUAD sits at $41.62, down 1.21% year to date and off 3.16% over the past year. It trades at a price-to-earnings ratio of 40 with a beta of 1.24 and a 0.47% dividend yield. ITA trades at roughly 39 times trailing earnings with a 0.45% yield, making this a total-return trade rather than an income swap.
The Real Tradeoffs
Concentration is the main risk on the U.S. side. GE, RTX, and Boeing alone account for roughly 44.5% of ITA's net assets, so a stumble in Boeing production or a commercial aerospace downturn would hit the fund harder than a pure defense basket would. The European fund's more diversified defense book offers less exposure to commercial aviation cyclicality.
ITA has returned 129.5% over five years and 305.55% over 10 years, while every European conflict cycle since 2016 has ultimately routed procurement through American primes. The performance gap is not a one-year artifact.
In a tax-advantaged account, swapping EUAD for ITA carries no tax consequence. In a taxable account, EUAD has traded flat to down for most holders who bought into the 2024 rearmament narrative, so realized gains may be modest or negative — potentially useful for tax-loss harvesting against other winners.
This article is for informational purposes only and does not constitute investment advice.
