The Defense ETF Duel: Old Guard Aerospace or Next-Gen Tech?

When comparing the Invesco Aerospace & Defense ETF (PPA) and the First Trust Indxx Aerospace & Defense ETF (MISL), investors face two distinct options within the same narrow sector. Both funds concentrate on defense-related companies, albeit with notable differences in cost, size, and historical performance.

The Invesco fund, an old-guard asset, boasts a larger portfolio, dating back to 2005, and has accrued $7.2 billion in assets under management. This fund offers a dividend yield of 0.4% and charges an expense ratio of 0.58%, slightly lower than its First Trust counterpart but still above the average ETF expense ratio.

Conversely, the First Trust fund is a more recent addition, launched in 2022, with $2.1 billion in assets under management. This fund presents a higher yield of 0.1% and carries a marginally higher expense ratio of 0.60%. However, MISL's portfolio is more concentrated and modern, with significant positions in innovative companies like Palantir and SpaceX.

Historically, PPA has outperformed MISL, generating a total return of 117% with a CAGR of 21.6% over the past decade, compared to MISL's 105% return and 19.8% CAGR. While neither fund provides substantial dividends, PPA's yield gives it a slight edge.

In terms of cost, both funds fall short of the average ETF expense ratio, with PPA at 0.58% and MISL at 0.60%. Despite these differences, PPA appears to be the more attractive choice for investors, offering superior performance, yield, and cost efficiency. However, for those seeking a forward-looking approach with exposure to cutting-edge tech companies, MISL may be the better option. Ultimately, the decision between these two ETFs hinges on one's investment priorities and risk tolerance.