ITA Just Ripped Higher, but America’s Rearmament Cycle May Still Be in the First Inning

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The iShares U.S. Aerospace & Defense ETF (BATS:ITA) has climbed 35% over the past year and nearly 17% year to date, and the reflexive retail question is whether the run is exhausted. The more useful question is whether ITA still fits the trade you actually want to make, which is long-cycle Western rearmament.

Buying ITA is a bet that Washington keeps writing bigger checks, NATO keeps chasing its new spending pledge, and the primes keep converting backlog into cash. The rally is real. The cycle it reflects is likely not close to over.

What you actually own

ITA tracks U.S. aerospace and defense equities, holds 47 positions, and manages roughly $13.5 billion in net assets. The return engine is straightforward. You collect the earnings power of the U.S. defense industrial base plus commercial aerospace recovery, weighted heavily toward the primes.

GE (NYSE:GE) sits at 22% of the fund, RTX (NYSE:RTX) at 15%, Boeing (NYSE:BA) at 9%. Add a few more names and you have accounted for the bulk of the portfolio before the fund even reaches its 47 smaller names.

So ITA is really a concentrated bet on eight companies with a long tail of drone, space, and specialty suppliers stapled on. Names like Axon (NASDAQ:AXON) at 3.3%, Rocket Lab (NASDAQ:RKLB) at 3.5%, and Kratos (NASDAQ:KTOS) at 0.7% give you exposure to the newer weapons and space economy without dominating results.

Does the thesis hold up

The macro tailwind is unambiguous. The FY 2027 Department of War request totals about $1.45 trillion, and NATO members agreed at last summer’s Hague Summit to a new 5% of GDP defense spending standard. Goldman Sachs is now flagging economic security, including the €800 billion ReArm Europe plan, as a defining 2026 megatrend. Missile inventories are depleted, drone demand is structural, and Boeing’s aircraft backlog remains multi-year.

Performance confirms the setup is working. ITA is up 137% over five years and 348% over ten, which handily beats broad industrials and matches the S&P 500 over the longer window while doing something different. That is the point of a thematic sleeve. It should express a view distinct from the index. That is the entire reason to own it.

The tradeoffs are real

Start with valuation. ITA trades at roughly 38 times earnings, well above the cyclical multiples this group used to command. You are paying growth-stock prices for companies that historically traded like utilities with backlogs. Second, concentration. When GE and RTX together are more than a third of the fund, one accounting scandal or program cancellation moves the whole ETF.

Third, policy risk. Proposed rules tying buybacks and dividends to contractor performance standards, along with a CEO compensation cap, would compress the capital-return story that has helped drive multiples higher.

If concentration bothers you, SPDR S&P Aerospace & Defense (NYSEARCA:XAR) is the equal-weighted alternative and tilts more toward mid-caps and suppliers. Invesco Aerospace & Defense (NYSEARCA:PPA) sits in between. If you want the primes to do the heavy work, ITA is the cleaner expression.

The verdict

ITA earns a place as a 3% to 7% thematic sleeve for investors who want direct exposure to the rearmament cycle and can tolerate the concentration in five or six defense primes. Waiting for a clean pullback is defensible given the 9% one-month move, but scaling in over several months beats trying to time a cycle backed by multi-year budget authorizations.

Investors who need income, hate cyclicality, or expect valuations to mean-revert to pre-2022 defense multiples should look elsewhere. Everyone else is looking at a first-inning trade that happens to have already scored some runs.

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