Replenishing the Arsenal: How U.S. Missile Shortages Are Driving Defense ETFs

The U.S. military has depleted much of its stockpile of long-range missiles during its five-month conflict with Iran, raising concerns about readiness for future conflicts, according to CNBC analysis. The rapid consumption of military defense inventories has exposed structural bottlenecks across the defense sector. This signals that replenishing stockpiles will require substantial procurement from defense contractors. Aerospace and defense ETFs provide exposure to the companies tasked with rebuilding these critical defense reserves.Key Takeaways Prolonged military conflicts have significantly depleted U.S. missile and interceptor stockpiles. Therefore, there may be a surge in procurement contracts for major defense suppliers like Lockheed Martin and RTX Corporation. Broad aerospace and defense ETFs such as the State Street SPDR S&P Aerospace & Defense ETF (XAR) and the Invesco Aerospace & Defense ETF (PPA) allow investors to capture this growing multi-billion-dollar industry. High missile production costs and fast utilization rates are potentially prompting military planners to look toward cheaper, scalable alternatives. That means thematic funds like the REX Drone ETF (DRNZ) can be a direct play on next-generation warfare technologies. The Scale of U.S. Defense SpendingGovernment agencies like the Department of Defense acquire military missiles from these firms through multi-billion dollar production contracts. The U.S. government is rapidly increasing defense spending, highlighted by a record $1.07 trillion Pentagon funding bill advanced by the House of Representatives in June. However, the bill must receive Senate and presidential approval before it can officially go into effect. The exact timeline for when the Senate vote will occur remains uncertain. Defense contractors such as Lockheed Martin (LMT) and RTX Corporation (RTX) command a large majority of U.S. military missile development and production. Lockheed Martin supplies the U.S. government an assortment of missiles. These range from the Patriot Advanced Capability-3 (PAC-3) air defense missiles to tactical precision-strike missiles such as the Hellfire (AGM-114). Similarly, RTX Corporation is contracted to produce tactical and air defense missiles, including the Tomahawk and Patriot (GEM-T).Missile Exposure Through Defense ETFsFor investors seeking broad exposure to these defense contractors, aerospace & defense ETFs offer a direct route. The iShares U.S. Aerospace & Defense ETF (ITA B+) provides market-cap weighted exposure to U.S. companies in the aerospace and defense sector. Tracking the Dow Jones U.S. Select Aerospace & Defense Index, a 22.5% cap is placed on any individual holding at each rebalance. ITA maintains concentrated exposure across top holdings with GE Aerospace (GE) and RTX Corporation collectively accounting for 38.52% of total assets. The fund has gained 16.95% year to date with inflows of $30.24 million over the same period. Similarly, the Invesco Aerospace & Defense ETF (PPA A-) provides exposure to U.S. companies in the industrials, aerospace, and defense sectors, with a 10% cap on individual holdings at each quarterly rebalance. The fund tracks the SPADE Defense Index, with top holdings including RTX Corporation at a 8.17% weight and Boeing (BA) at a 7.07% weight. PPA has climbed 17.45% in 2026 with inflows of $642.89 million. The State Street SPDR S&P Aerospace & Defense ETF (XAR B) provides equal-weighted exposure to U.S. companies in the aerospace and defense sector. The fund tracks the S&P Aerospace & Defense Select Industry with top holdings including VSE Corporation (VSEC) at 3.37% of total assets and RTX corporation at 3.26%. XAR has gained 18.97% and has received $907.04 million in new assets so far in 2026. See More: ETF Prime: Defense ETFs Draw Billions Amid Global TensionsInvesting in the Future of DefenseThe current missile supply concerns could potentially accelerate a broader shift towards cheaper and more scalable alternatives. Given the high utilization of drones and unmanned aerial vehicle (UAV) systems in Ukraine, the U.S. military may pair missile production with lower-cost alternatives like autonomous systems. The REX Drone ETF (DRNZ) provides targeted exposure to the global drone and UAV industry, focusing primarily on companies involved in defense and commercial applications. See More: REX Drone ETF DRNZ Glides Past $100 Million AUM Goalpost Tracking the VettaFi Drone Index, DRNZ allocates 80% of assets to pure-play companies who derive a majority of revenue from drones or UAV-enabling technology. The remaining 20% targets diversified companies, including defense firms with designated UAV divisions. The fund’s top holdings include AeroVironment (AVAV) at a 14.32% weight and Ondas (ONDS) at a 12.78% portfolio weight. DRNZ has returned 8.23% over the course of the year, while receiving $112.11 million in new assets over the same period. For more news, information, and analysis, visit the Thematic Investing Content Hub. VettaFi LLC (“VettaFi”) is the index provider for DRNZ which it receives an index licensing fee. However, DRNZ is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of DRNZ.