Last year, tactical and thematic investors were rewarded by the aerospace and defense trade and that trend is carrying over into 2026. Fortunately for market participants that want to eschew stock-picking, there’s a bevy of exchange traded funds (ETFs) providing exposure to aerospace and defense equities.
Thanks to new-age, tech-centric spins on what was previously viewed as a stodgy segment, the universe of defense ETFs is increasing in population, meaning it’s possible some potentially useful funds are slipping through the cracks and not commanding the attention they deseve.
Arguably, that’s the state of affairs for the First Trust Indxx Aerospace & Defense ETF (NYSE: MISL). But let’s be clear. MISL, which tracks the Indxx US Aerospace & Defense Index, is a $1.45 billion ETF that turned three years old last October so it’s neither new nor small. Superficial metrics to be sure, but the First Trust ETF is delivering the goods in terms of performance as it’s higher by 54.69% over the past 12 months and up more than 11% year-to-date.
Data points like those may give investors pause or reason to believe they’ve missed out on the “easy money,” but there are credible fundamental reasons supporting the case for more upside for the aptly tickered MISL.
It’s All About the Dollars
Or other currencies, but the point is countries around the world are learning lessons from the ongoing Russia-Ukraine war and various conflicts in the Middle East. Nations want to bolster their national security and more are willing to spend big to accomplish that goal. That’s good news for ETFs like MISL.
“According to the Stockholm International Peace Research Institute (SIPRI), world military spending grew 9.4% in 2024 to $2.7 trillion, marking the steepest annual increase since the end of the Cold War and the tenth consecutive year of growth,” notes First Trust. “This momentum intensified at the 2025 NATO Summit in June, where allies committed to investing 5% of GDP annually on defense and security-related spending by 2035.”
Obviously, contributions from other countries – long overdue in some instances – are vital to the defense investing thesis, but the U.S. will remain the dominant force on this front. That’s just fine for investors considering funds such as MISL because the First Trust ETF is comprised of domestic companies that do big business with Uncle Sam.
“In the U.S., the Trump administration’s FY2026 defense budget totaled roughly $1 trillion (including $113.3 billion in mandatory funding via congressional reconciliation),” adds First Trust. “This figure was quickly eclipsed by President Trump’s January 2026 announcement on Truth Social proposing a $1.5 trillion defense budget for FY2027.”
Play the Space Race with MISL
Even without all the commotion around the possible SpaceX initial public offering (IPO) at some point this year, space investing has been garnering more attention and rightfully so. Some estimates indicate the space economy could be worth as much as $1.8 trillion as soon as 2035.
That figure could met or exceeded with the help of orbital data centers, which would alleviate the energy and real estate constraints hyperscalers face here on earth. The point is the space economy will be expansive and for it to reach its potential, it needs the competencies provided by MISL member firms.
“Looking ahead, we see several key growth drivers, including satellite-enabled services such as direct-to-device mobile connectivity, advanced weather and climate monitoring, and emerging innovations to address the growing demands of artificial intelligence—including space-based orbital data centers,” concludes First Trust.
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