Exploring the Invesco Aerospace & Defense ETF: A Comprehensive Look at This Popular Passive Investing Tool

The Industrials - Aerospace & Defense segment of the equity market has been a popular choice for investors seeking broad exposure to this sector. One of the most well-known and widely traded vehicles for accessing this space is the Invesco Aerospace & Defense ETF (PPA). Launched on October 26, 2005, PPA is a passively managed exchange-traded fund that tracks the SPADE Defense Index.

Passive investing has become increasingly popular among institutional and retail investors alike due to its several advantages over active management strategies. Among these advantages are low costs, transparency, flexibility, and tax efficiency. These characteristics make passive products ideal for long-term investors who want to align their investment portfolios with their risk tolerance and financial goals. With the emergence of sector ETFs, which offer broad exposure to specific sectors at a relatively low cost, investors now have more options than ever to access particular industries.

Index Details: A Closer Look at the SPADE Defense Index

PPA seeks to replicate the performance of the SPADE Defense Index before fees and expenses. This index is comprised of approximately 50 U.S. companies whose shares are listed on a U.S. exchange, and these companies are mostly engaged in researching, developing, manufacturing, operating, or supporting defense, military, homeland security, and space operations. By tracking this index, PPA offers investors a diversified portfolio that exposes them to the vast array of market factors driving growth within this sector.

Expenses: Understanding the Cost

One key factor to consider when evaluating ETFs is their expense ratio. This metric refers to an ETF's annual operating expenses as a percentage of its net assets. In the context of PPA, its expense ratio stands at 0.57%, which places it in line with many other peer products within the aerospace and defense sector. While other metrics can provide insight into how well a specific product performs compared to its peers, the importance of keeping costs low cannot be overstated; as lower-cost ETFs are expected to outperform those with higher expense ratios.

A 12-month trailing dividend yield of 0.46% offers additional revenue-generating potential for investors who hold this fund. Since passive index-tracking products typically do not offer high yields, PPA's dividend can also serve as an attractive feature for income-minded investors seeking sector-exposure without sacrificing dividend income from their portfolios.

Sector Exposure and Top Holdings

Although ETFs inherently embody diversification by spreading investment across a broad range of companies, understanding the individual holdings can be valuable information. This insight allows investors to gauge both the portfolio's asset allocation and risk profile more effectively than solely relying on sector exposure metrics.

In PPA, the largest contributor is General Electric Co (GE), accounting for approximately 7.93% of total assets under management. Boeing Co. (BA) follows closely at about 6.34%, while Rtx Corp (RTX) accounts for roughly 4.51%. The top 10 holdings account for nearly 55.65% of the portfolio. These figures demonstrate PPA's diversified nature and alignment with its sector focus, minimizing risk through its substantial exposure to a variety of companies.

Performance and Risk: Medium Risk and High Returns

PPA has recorded an impressive return this year of roughly 22.69%, while exhibiting moderate volatility during the last one-year period with a gain of about 36.87% (as of June 30, 2025). Notably, its recent price has fluctuated between $102.05 and $140.56 over the past 52 weeks.

The beta is 0.85, indicating medium risk compared to the overall market volatility, while the standard deviation of 17.50% for the trailing three-year period further supports this characterization. PPA also exhibits effective diversification with approximately 58 holdings, reducing company-specific risks inherent in individual stocks.

Alternatives: Options Beyond Invesco Aerospace & Defense ETF

Investors should consider examining other products within this sector as potential alternatives or complementary investments to their portfolios. Relevant examples include:

• The SPDR S&P Aerospace & Defense ETF (XAR), which tracks the S&P Aerospace & Defense Select Industry Index, boasting a smaller asset base of $3.53 billion but significantly lower expenses at 0.35%.
• The iShares U.S. Aerospace & Defense ETF (ITA), managing $8.23 billion in assets and charging about 0.40% in operating fees.

Conclusion

PPA offers an accessible way to achieve exposure to the Industrials - Aerospace & Defense sector, especially for those with investment horizons extending beyond a short-term perspective. The passively managed ETF structure of PPA ensures alignment with its benchmark index, further enhancing its cost-efficient advantages and ability to deliver robust long-term returns.

Therefore, investors should recognize that, in addition to offering broad exposure to aerospace and defense companies, this product also demonstrates lower fees compared to similar peer products available within the sector. Investors looking for exposure to this sector could consider including PPA in their portfolio due to its competitive expense ratio, tax efficiency, flexibility, and transparency.

Investors may choose from several alternatives while navigating through various options like XAR or ITA, but ultimately, the choice of investing depends on an individual's specific needs and risk tolerance.