Defense Sector ETFs Enter Oversold Territory Amid Heavy Selling

Major exchange-traded funds (ETFs) tracking the U.S. aerospace and defense sector have entered technically oversold territory following a period of significant selling pressure. According to data from Investing.com, the 14-day Relative Strength Index (RSI) for several of the industry's largest funds has fallen well below the 30 level, a threshold often monitored by technical analysts for potential valuation shifts.

Widespread Selling Hits Major US Funds

The downturn has been most pronounced in the largest and most widely held passive ETFs that provide broad exposure to the U.S. defense industry. The sell-off has resulted in steep three-month drawdowns and historically low RSI readings.

• iShares U.S. Aerospace & Defense ETF (ITA): Down 13.6% over the past three months with an RSI of 22.1.
• Invesco Aerospace & Defense ETF (PPA): Down 11.5% over the same period with an RSI of 19.9.
• SPDR S&P Aerospace & Defense ETF (XAR): Has seen the sharpest recent decline, falling 17.8% over three months and pushing its RSI to 18.4.

An RSI reading below 30 is typically interpreted by market technicians as a sign that an asset has been heavily sold and may be undervalued. The source material suggests these declines could be linked to macroeconomic headwinds, such as defense budget uncertainty and sensitivity to interest rates.

Diverging Performance Highlights Sector Shifts

Despite the broad weakness, several specialized defense ETFs have demonstrated notable resilience, highlighting different trends within the sector. The performance of funds with a focus on defense technology, active management, or European markets has diverged from their U.S.-centric peers.

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Tech and European Funds Outperform

The Global X Defense Tech ETF (SHLD), which focuses on areas like cybersecurity and drones, has bucked the trend by posting a 1.2% gain over the last three months. Meanwhile, the Select STOXX Europe Aerospace & Defense UCITS ETF (EUAD) has remained nearly flat, a performance that may reflect increased defense spending commitments among European nations.

Furthermore, the actively managed iShares Defense Industrials & Tech Active ETF (IDEF) is the only fund in the analyzed group with a positive year-to-date return, up 1.9%, according to the data.

Key Fund Metrics

For investors monitoring the sector, the largest funds by assets under management (AUM) are ITA ($12.3 billion), PPA ($8.1 billion), and SHLD ($6.6 billion). In terms of cost, the SPDR S&P Aerospace & Defense ETF (XAR) is the most inexpensive option listed, with an expense ratio of 0.35%, followed by the iShares U.S. Aerospace & Defense ETF (ITA) at 0.42%.