Overview of the iShares U.S. Aerospace & Defense ETF (ITA)
The iShares U.S. Aerospace & Defense ETF (NYSEARCA: ITA) is currently experiencing a significant one-year gain of 34%, with shares hovering around $235 and total net assets reaching $13.5 billion. This performance is set to be influenced by two major events in the coming weeks: the Pentagon's FY2027 budget request and the June 29 Honeywell Aerospace spin-off. These events will play a crucial role in determining whether ITA continues its upward trajectory.
What the Fund Actually Owns
The ITA ETF tracks the Dow Jones U.S. Select Aerospace & Defense Index, maintaining a net expense ratio of 0.38%. The top holdings include GE Aerospace (19% of net assets), RTX (approximately 17%), and Boeing (nearly 9%). Together, these three companies account for roughly 44% of the portfolio. Adding General Dynamics and Lockheed Martin brings the top five holdings to approximately 54% of the portfolio. When investors purchase ITA, they are effectively investing in GE, RTX, and Boeing, with an added defense component.
The Macro Factor: The $1.45 Trillion FY2027 Budget
The most significant driver of potential growth over the next 12 months is the $1.45 trillion FY2027 Department of War budget request, which represents a 42% increase compared to the FY2026 enacted level. Procurement is expected to rise from $163.6 billion to $257.6 billion, with research, development, test, and evaluation (RDT&E) moving to $218.8 billion. This budget includes funding for $18 billion for Golden Dome and over $74 billion for drone and counter-drone systems, along with next-generation programs such as the F-47 and B-21.
Investors should monitor the appropriations markup language and any continuing resolution that might delay procurement obligations past October 1. Information can be found on the House and Senate Armed Services Committee pages and on Comptroller.defense.gov. It is advisable to check updates monthly through the summer and weekly through September. Lockheed Martin has already indicated how this could affect the industry, signing multi-year framework agreements for Patriot, THAAD, and PrSM, targeting production rates up to three to four times current levels. If the budget passes near the request, ITA's defense primes could gain multi-year visibility. A continuing resolution extending into FY2027 would also prolong this visibility.
The Fund-Specific Factor: The June 29 Honeywell Split
Honeywell is set to complete its aerospace spin-off on June 29, 2026, creating a separately traded entity called Honeywell Aerospace under the ticker HONA. Although Honeywell is not currently listed in ITA's March 31 snapshot, the new pure-play HONA is likely to be added to the index at the next reconstitution. The Aerospace Technologies segment generated $4.32 billion in Q1 revenue with a 1.1x book-to-bill ratio, making it a meaningful new constituent.
For holders, it is important to watch the iShares website for the index methodology notice and the post-spin holdings file, typically posted within two trading days of the event. If HONA prices weakly after the spin-off, ITA's net asset value (NAV) will absorb that impact. The opportunity lies in the arrival of a clean aerospace pure-play just as GE Aerospace guides FY2026 EPS to $7.10 to $7.40 on a $170 billion commercial services backlog, validating the aftermarket thesis that HONA will be sold on.
The Supporting Cast and One Warning
Howmet Aerospace raised its FY2026 guidance to $4.88 to $5.00 in adjusted EPS after Engine Products grew by 29%, although CEO John Plant highlighted risks related to Iranian conflict affecting engine spares demand. General Dynamics reported a 2-to-1 book-to-bill and $188.4 billion in estimated contract value. However, the warning sign is Lockheed Martin, which reported $125 million in F-16 charges that compressed segment margins to about 10% from nearly 12%, and the stock is down 5% since earnings while the S&P rose nearly 7%. If similar charges occur in Q2, the roughly 4.58% LMT position could become a persistent drag.
What to Watch in One Line
If Congress passes FY2027 defense appropriations near the $1.45 trillion request before October 1, ITA's defense weighting could carry another year of upside. The fund-specific signal is the post-June 29 holdings file: confirm HONA's weight and watch whether GE Aerospace stays above 18%, as this single position drives the index more than any macro headline.
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