Know Your Space And Defense Exposure

By Rahul Bhushan, Tom Barker, CAIA

Managing Director, Global Head of Index, ARK Europe

Rahul joined ARK in September 2023 following ARK’s acquisition of Rize ETF (now ARK Invest Europe), of which he was Co-Founder and Director. Rahul is a Managing Director and Global Head of Index in Europe as well as Director on the board of the ARK Invest UCITS ICAV. An expert strategist in thematic and sustainable investments, Rahul is responsible for spearheading global systematic (self-indexed) strategies, overseeing European UCITS product strategy and implementation, and leading investment research alongside managing our product specialist team. His research focus includes the Energy Transition, Food Sustainability, and the Digital Economy.

Client Portfolio Specialist

Tom Barker, CAIA joined ARK in October 2021. As a Director and Product Specialist, Tom works closely with clients and the sales team to promote an understanding of the ARK product range.

This article is intended for investors building, reassessing, or seeking to diversify their defense allocations at a time when technological advancement is redefining how nations prepare for and respond to modern threats. Traditional exposures focused on legacy contractors and passive index strategies are no longer sufficient in a world shaped by hypersonics, autonomous systems, and space-based reconnaissance. The convergence of these technologies is transforming the defense landscape and creating new frontiers in space. Understanding this shift is critical to identifying where value will be created as global defense priorities evolve. The ARK Space and Defense Innovation ETF (“ARKX”) is designed to capture these opportunities by focusing on the companies driving next-generation defense capabilities and space infrastructure. This is a strategy for staying ahead in a world where technological superiority defines resilience and where defense innovation will determine leadership across both military and space domains.

Modern Warfare Has Changed Dramatically

On November 21, 2024, a quiet message was transmitted through the established nuclear risk reduction channels, a relic of Cold War diplomacy designed to prevent misunderstandings that could end civilization.¹ Russia informed the US of an imminent ballistic missile launch, urging that it not be mistaken for a nuclear strike.

Thirty minutes later, the world was forced to confront a new reality.

The Oreshnik hypersonic intermediate-range ballistic missile, traveling at a velocity approaching Mach 10, pierced the dawn skies over Eastern Europe. Its target: the PA Pivdenmash facility in Dnipro, Ukraine, a symbol of space and defense manufacturing legacy. Though armed with dummy warheads, the Oreshnik did not need explosives to make its point. The sheer kinetic force of impact was enough to send shockwaves, both literal and geopolitical, across continents.

Russian state media hailed it as a demonstration, a “warning shot.”²  Western outlets barely covered the event. Yet for those paying attention, November 21 was more than a weapons test; it was the funeral bell tolling for traditional defense doctrines.

In that moment, air defense systems, once the pride of military-industrial complexes, were rendered obsolete by a missile too fast to intercept and too agile to predict. The age of conventional deterrence was eclipsed by an era defined by hypersonics, autonomous systems, and space-based intelligence.

This is no longer speculation. As the war in Ukraine grinds on, it has become a live testing ground for next-generation defense technologies. Drones swarm battlefields, AI-driven targeting systems accelerate decision cycles, and satellites provide real-time reconnaissance once reserved for science fiction.

Meanwhile, geopolitical alliances are hardening in unexpected ways. Russia and China, once adversaries, now stand shoulder to shoulder, blending Russia’s raw material power with China’s technological prowess. Intelligence reports suggest collaboration not only in hypersonics but also across quantum communication, space weaponry, and AI-enhanced missile guidance.

The U.S. Secretary of War recently sounded the alarm, warning that China’s hypersonic arsenal could neutralize an entire aircraft carrier group in under 20 minutes, a stark reminder of how vulnerable even the most formidable military assets have become.³ Echoing this shift in security dynamics, European Commission President Ursula von der Leyen has urged that “Europe must learn to defend itself,” highlighting the continent’s reliance on outdated defense frameworks in an age of hypersonic and autonomous threats.⁴ NATO Secretary General Jens Stoltenberg reinforced the urgency, stating that without accelerating investment in advanced technologies ranging from space-based surveillance to AI-driven defense systems, the alliance risks falling behind adversaries who are redefining the rules of modern warfare.⁵

For investors, the implications are stark. The defense landscape is being redefined—not only by firepower but also by innovation velocity.

Once insulated by decades of procurement cycles and political inertia, legacy contractors now face existential risk. Technological superiority is no longer guaranteed by size or history but by adaptability, data, and breakthrough engineering. The battle for supremacy is shifting to space, cyberspace, and autonomous platforms, domains where nimble innovators outpace incumbents.

Regional defense allocations are becoming increasingly irrelevant. In an interconnected world where alliances dictate survival, it no longer matters whether cutting-edge technology originates in the US, Europe, or China. What matters is that it stays out of adversarial hands.

Yet recent flows into defense ETFs suggest that many investors remain anchored to outdated frameworks, chasing geopolitical headlines instead of understanding where true defense innovation is taking place.

This article aims to challenge that mindset.

We explore how modern warfare is transforming before our eyes, why traditional defense sectors are vulnerable, and how investors can position themselves at the forefront of this technological revolution. The ARK Space and Defense Innovation ETF (ARKX) is designed for this new era, targeting companies pioneering advancements across aerospace, AI-driven defense systems, and beyond.

In today’s world, survival is not guaranteed by legacy. It is earned through innovation.

Is Your Defense Allocation Prepared For The Future?

For decades, defense investing has followed a familiar pattern: allocating capital to established contractors, tracking broad aerospace and defense indices, and assuming that geopolitical tensions would translate into predictable returns from legacy government contractors. But the dynamics underpinning that approach have changed fundamentally.

Today, defense is no longer defined by scale, lengthy procurement cycles, or Cold War-era doctrines. It is being reshaped by technological disruption, where superiority is determined by speed of innovation, adaptability, and the integration of emerging technologies, such as AI, autonomous systems, hypersonics, and space-based infrastructure. This shift demands a reassessment of how investors gain exposure to the sector moving forward.

Historically, traditional defense manufacturers have focused on complex, high-cost systems that take years to develop. The new world puts that model under pressure. Countries like China are producing low-cost weapons at speed, using mass production to overwhelm more expensive Western assets. Even cheap drones that only work half the time can destroy multi-million-dollar aircraft, creating an enormous cost imbalance. As a result, Western defense companies are racing to cut costs, accelerate production, and rethink how they design and deploy new technologies.

Passive strategies and traditional benchmarks remain heavily weighted toward incumbents—companies whose dominance was built in a pre-digital, hardware-centric era of defense. While those firms still have some role to play, increasingly they are challenged by nimble innovators who are developing the systems and platforms that will define the future of warfare and security.

Simultaneously, many defense-focused ETFs limit investors through regional biases or narrow thematic scopes, missing the global and cross-sector nature of modern defense applications. The convergence of commercial space advancements with military applications, the rise of dual-use technologies, and the growing importance of software, data, and automation are often overlooked by those strategies. 

In that environment, investors must ask themselves whether their current allocations truly reflect where defense spending, technological breakthroughs, and strategic priorities are heading. Exposure to yesterday’s defense giants is not the same as positioning for tomorrow’s defense landscape, which will be shaped by innovation.

The ARK Space and Defense Innovation ETF (ARKX) is built for this new reality. The fund focuses on companies innovating to redefine the future of defense and security. For example, Kratos Defense & Security Solutions is advancing autonomous systems and tactical drones; AeroVironment Inc is pioneering unmanned aerial platforms; Rocket Lab Corp is expanding low-cost access to orbit and responsive launch capabilities; and Palantir Technologies Inc is delivering AI-driven situational awareness and data superiority. Alongside those next-generation innovators, ARKX also includes well-positioned defense primes, such as Airbus SE and Thales Group, which are adapting their capabilities to this new era of space-enabled, software-driven defense. Together, these holdings capture the technological shift reshaping how nations project power, secure assets, and operate in both terrestrial and orbital domains.

The following sections outline how ARKX differentiates itself through active management, high-conviction allocations, a dual focus on space and defense, a global perspective, and an unwavering focus on identifying innovation-focused leadership.

Active Management And High-Conviction Allocations

• Unlike passive index trackers, ARKX is actively managed with high-conviction bets on what we believe are the most innovative space and defense companies. ARKX is not constrained by market-cap weights or legacy index definitions, and it overweights emerging leaders that traditional funds barely hold. For example, ARKX’s top holdings include Kratos Defense & Security Solutions and Rocket Lab Corp, both cutting-edge players in national security, thanks to their advancements in drone technology and space launch systems. Many conventional aerospace & defense ETFs allocate only a token 1-2% to these names, if they hold them at all. ARKX’s concentrated positions in such innovators reflect a strong conviction that these next-gen technologies will drive the future of space and defense. The active approach enables ARK to adjust the portfolio toward the most promising opportunities, whether hypersonics, advanced satellite communications, or AI-powered defense systems.
• By focusing on its highest-conviction ideas, ARKX creates a portfolio that looks very different from the typical “aerospace & defense” fund. ARKX holds only ~30-35 companies, the top ten constituting a sizable portion of assets. This contrasts with passive peers that often hold 50+ stocks, diluting their exposure to the innovators driving change. ARK’s research-driven selection means that if a company represents a breakthrough in space or defense, it can occupy a meaningful weight in the fund, regardless of its size or sector classification. For investors, this high-conviction approach translates into a purer exposure to growth: ARKX is designed to capture the upside of growth companies rather than closely resembling an index.

Focus On Dual-Use Technologies

• ARKX leverages exposure to “dual-use” defense technologies—platforms and systems that serve both military and civilian applications. Archer Aviation, for example, is collaborating with Anduril Industries to develop a hybrid vertical take-off and landing (VTOL) aircraft for defense operations, supported by a $430 million equity raise for its Archer Defense unit.⁶ The underlying propulsion, materials, and autonomous engineering also lay the groundwork for future urban air mobility and passenger air-taxi solutions. 
• Similarly, Joby Aviation and L3Harris Technologies are advancing an aircraft capable of operating with or without a pilot, a milestone that enhances the autonomy, sensor fusion, and safety architectures required across commercial aviation.⁷
• Rocket Lab Corp also exemplifies the convergence of commercial and defense space applications. Its Electron and Neutron launch systems are used for both national security payloads and commercial satellite constellations, while its Photon spacecraft platform supports missions for NASA and the US Space Force.⁸
• Finally, Palantir Technologies Inc’s platforms built for civilian data mapping, processing, and analytics enable real-time decision-making, logistics optimization, and threat detection across both military and commercial domains.

Convergence Of Space And Defense Innovation

• ARKX is the one of the few ETFs combining both space and defense themes under one roof. ARK’s research shows that the boundaries between "modern warfare" and aerospace technology are fading, encompassing areas such as satellites, rockets, and drones. Many funds that compete with ARKX are narrowly themed, focusing either on space or defense—not both. For instance, there are pure space ETFs that target satellite communications and space tourism but separate defense ETFs centered on military contractors. ARKX bridges and includes both domains.
• This dual focus sets ARKX apart from space-focused ETFs, which ignore defense innovators, and from traditional defense funds, which tend to overlook the commercial space revolution and defense technology. ARKX holds defense AI software firm Palantir. It also includes emerging space mobility and aerospace innovators, such as eVTOL makers Archer Aviation and Joby Aviation, reflecting ARK’s belief that technologies like autonomous air taxis have space and defense applications. ARKX gives investors a one-stop solution to invest in orbital satellites, rockets, cyber defenses, and autonomous systems, to name a few.
• Crucially, ARK’s broader mandate means greater opportunity for alpha. The portfolio can rotate into whichever segment (space or defense) offers the best risk/reward at a given time. For example, if advancements in satellite constellations or lunar exploration accelerate, ARKX can emphasize those; if breakthroughs in defense AI or hypersonic missiles take center stage, ARKX can pivot accordingly. This flexibility contrasts starkly with narrowly-defined funds that must stick to a limited universe while better opportunities arise elsewhere. 

Global Purview vs. Regional Bias

• Innovation knows no borders, and neither does ARKX. The fund casts a global net for the best space and defense innovators, whether in Silicon Valley, Stockholm, or Seoul. Many competing ETFs have a regional bias or, in some cases, restriction. As a result, they end up heavily concentrated in a few local incumbents. For instance, companies like Rheinmetall, Thales, and Saab AB would dominate a Europe-only fund.
• ARKX breaks that mold with a truly global portfolio centered on the most innovative companies: roughly half US stocks and the rest from across Asia, Europe, and the Middle East. We invest in Japanese heavy-industry innovator Komatsu Ltd. , in French aerospace firm Thales , and in Chinese logistics tech company JD Logistics—alongside US names. This global approach means that ARKX can identify and invest in the most capable defense innovators wherever they are headquartered. Unlike regional funds bound by geography, ARKX reflects the reality that modern defense procurement is not limited by borders. When national security is at stake, governments and militaries buy the best available technology, regardless of where the company is domiciled. 
• Our global purview also provides diversification benefits that region-locked funds lack. Geopolitical and defense innovation trends are global in nature; ARKX gives exposure to NATO-aligned defense upgrades, US Space Force initiatives, Asian aerospace growth, and more—all in one fund. In contrast, a Europe-only defense ETF might be overly allocated to European budget cycles or legacy contractors, and a US-only fund misses the vibrant developments in allied nations. ARKX’s inclusion of international innovators ensures that the fund is positioned wherever the “next-gen” breakthroughs are happening. For investors, that means broader opportunity and reduced concentration risk compared to ETFs confined to one region’s market.

Innovation-Centric Selection vs. Conventional Index Composition

• Another important differentiator is what ARKX deliberately excludes. For example, ARKX does not simply hold the largest “aerospace & defense”  by considering market cap, because size alone does not guarantee innovation. Many of the top holdings in traditional defense indexes are legacy contractors or aerospace giants that, while important, are not growing as fast as the new disruptors.
• ARK begins with a blank sheet of paper, open to all new opportunities, wherever they arise, seeking out transformative companies that drive innovation. The ARKX includes companies at the intersection of aerospace, AI, robotics, and defense that ARK’s research deems transformative, even if they belong to sectors that a classic defense index would exclude. For example, ARKX owns semiconductor and AI names like AMD and Alphabet because advanced chips and AI capabilities are now vital to space and defense technology. A typical defense ETF tied to an index would never hold AMD or Alphabet, as those are categorized as “Tech” or “Communication Services” sectors.
• On the flip side, ARKX significantly underweights or zero-weights many legacy aerospace & defense stocks that populate competing funds. For instance, ARKX currently holds no Boeing or Raytheon—two “staples” of traditional aerospace indexes. Similarly, ARKX has limited exposure to European defense heavyweights like BAE Systems, which dominates regional benchmarks. By reducing our exposure to lower-growth incumbents, ARKX frees up more investment allocation to invest in companies pushing the envelope: think hypersonic missile technology, reusable rockets, satellites, and autonomous drone platforms—in our view, the categories redefining modern warfare and space exploration. 
• Another example of how ARK thinks about balancing innovation with incumbent technologies is ARKX’s emphasis on the shift toward low-cost, autonomous, attritable drones—a trend that has accelerated after the war in Ukraine—instead of large, manned, exquisite platforms. ARKX backs the leaders in the cost-effective systems while recognizing both that prime contractors continue to deliver important next-generation technologies and that exquisite platforms still have a role whose extent remains obscure.
• ARKX’s portfolio is built for the future, not the past. It looks very different from a standard aerospace & defense index fund: fewer legacy aircraft manufacturers and old-line contractors, and more pure-play innovators and enabling technology firms. This innovation-centric selection process means that ARKX is better positioned to capture growth.
• As a result, ARKX can be a healthy complement to or replacement for traditional defense funds, because it provides exposure that is both broader (in thematic scope) and more focused (in picking innovators) than the conventional approaches. Investors who worry that other defense ETFs are “chasing geopolitical headlines” or recycling yesterday’s winners will find ARKX’s forward-looking portfolio refreshing.

Minimal Overlap With Competing ETFs

• Because of its unique active stock selection, ARKX has remarkably low overlap with other space or defense ETFs, underscoring how differentiated its holdings are. Many common constituents in peer funds (the big defense primes, for example) are either absent from ARKX or present at much smaller weights. This low overlap makes ARKX an excellent complement even for investors who already hold other defense or aerospace ETFs. Adding ARKX can fill the gaps those funds miss and introduce new names and themes to a portfolio.
• By contrast, many of ARKX’s peers significantly mirror each other. Even broad global funds based on traditional indexes tend to hold a similar basket of large-cap defense names. 
• For investors and advisors, ARKX can be positioned as a unique satellite allocation in a core/satellite portfolio or as a replacement for multiple narrower funds. Its low overlap implies low redundancy: owning ARKX alongside a traditional defense ETF, for example, adds new exposure instead of concentrating risk. In fact, ARKX often captures what others miss. For example, it holds specialist names like AeroVironment (small drones) that a large-cap index fund underweights, and pure-play space companies that defense funds omit entirely. ARKX thus complements core holdings with its innovation-driven alpha potential. The bottom line? No other ETF in the space or defense category looks like ARKX, a key differentiator for investors.

Why Innovation Wins In The End

In an ETF landscape crowded with look-alike space and defense products, ARK Space & Defense Innovation ETF stands out as a truly differentiated strategy. It combines two powerful themes—space and defense technology—in one actively managed portfolio, giving investors exposure to the full range of “new space” and next-gen military systems. ARKX’s active management and research depth enable us to pinpoint the companies leading disruptive innovation and to size those positions boldly. Meanwhile, we reject the complacency associated with holding only yesterday’s defense giants. 

ARKX captures companies pioneering space-based intelligence, autonomous and electric aircraft, precision robotics, and other technologies reshaping defense and aerospace. The result is pure-play access to the future of space and defense innovation, spanning AI, robotics, hypersonics, and orbital infrastructure.

As geopolitical tensions and space ambitions fuel unprecedented technological investment, ARKX positions investors at the forefront of these transformative shifts. For those seeking to align their portfolios with the future of defense and space, ARKX offers what we believe is the most compelling solution in the US.

Fund Overview

The ARK Space and Defense Innovation ETF offers targeted exposure to companies leading the transformation of modern space and defense through cutting-edge technologies. As warfare and space exploration evolve, ARKX captures the shift from legacy defense contractors and traditional aerospace hypersonics, autonomous systems, space-based reconnaissance, AI-driven defense platforms, and space-based intelligence. ARKX is designed to position investors at the forefront of this technological revolution across both space and defense innovation.

Key Differentiators:

• High-Conviction, Actively Managed Portfolio: A concentrated selection of ~30-35 companies, reflecting ARK’s strongest innovation themes across space and defense technology. Free from index constraints, ARKX emphasizes thematic purity and future growth potential.
• Dual Focus on Space and Defense Innovation: Unlike single-theme ETFs, ARKX combines exposure to next-generation defense systems and aerospace breakthroughs, including satellites, reusable rockets, drones, and AI-powered defense solutions.
• Minimal Exposure to Legacy Contractors: Avoids over-reliance on large-cap defense primes and traditional aerospace firms that dominate passive ETFs but face structural challenges in adapting to rapid technological change.
• Global Purview with Innovation-Centric Selection: Invests in pioneers worldwide, from US space launch disruptors to European defense electronics specialists and Asian robotics innovators, ensuring diversified access to the fastest-growing segments of modern space and defense innovation.
• Low Overlap and Portfolio Diversification Benefits: Designed to complement traditional space and defense ETFs, ARKX offers minimal overlap with competing funds by focusing on underrepresented innovators and emerging defense technologies.

To learn more about how ARKX can position your portfolio at the forefront of space and defense innovation, please click here.

Important Information

Investors should carefully consider the investment objectives and risks as well as charges and expenses of an ARK ETF before investing. This and other information are contained in the ARK ETFs’ prospectuses, which may be obtained by visiting www.ark-funds.com. The prospectus should be read carefully before investing. 

Investing in securities involves risk and there's no guarantee of principal.

Fund Risks: The principal risks of investing in ARKX: Equity Securities Risk. The value of the equity securities the Fund holds may fall due to general market and economic conditions. Foreign Securities Risk. Investments in the securities of foreign issuers involve risks beyond those associated with investments in U.S. securities. These risks are greater in emerging markets. Industrials Sector Risk. The industrials sector includes companies engaged in aerospace and defense, electrical engineering, machinery, and professional services. Companies in the industrials sector may be adversely affected by changes in government regulation, world events and economic conditions. In addition, companies in the industrials sector may be adversely affected by environmental damages, product liability claims and exchange rates. Information Technology Sector Risk. The information technology sector includes companies engaged in internet software and services, technology hardware and storage peripherals, electronic equipment instruments and components, and semiconductors and semiconductor equipment. Information technology companies face intense competition, have limited product lines, markets, financial resources or personnel, face rapid product obsolescence, are heavily dependent on intellectual property and the loss of patent, copyright and trademark protections may adversely affect the profitability of these companies. 

Aerospace and Defense Company Risk. Companies in the aerospace and defense industry rely to a large extent on U.S. (and other) Government demand for their products and services and may be significantly affected by changes in government regulations and spending, as well as economic conditions, industry consolidation and other disasters. For other risks regarding the fund please see the prospectus. There can be no assurance that the ETF will achieve its investment objective. The ETF’s portfolio is more volatile than broad market average. Disruptive Innovation Risk. Companies that ARK believes are capitalizing on disruptive innovation and developing technologies to displace older technologies or create new markets may not in fact do so. Companies that initially develop a novel technology may not be able to capitalize on the technology. Companies that develop disruptive technologies may face political or legal attacks from competitors, industry groups or local and national governments. These companies may also be exposed to risks applicable to sectors other than the disruptive innovation theme for which they are chosen, and the securities issued by these companies may underperform the securities of other companies that are primarily focused on a particular theme. Special Purpose Acquisition Companies (SPAC) Risk. A SPAC is a publicly traded company that raises investment capital for the purpose of acquiring or merging with an existing company. Investments in SPACs and similar entities are subject to a variety of risks beyond those associated with other equity securities. Because SPACs and similar entities do not have any operating history or ongoing business other than seeking acquisitions, the value of their securities is particularly dependent on the ability of the SPAC’s management to identify a merger target and complete an acquisition.

Shares of ARKX are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. ETF shares may only be redeemed directly with the ETF at NAV by Authorized Participants, in very large creation units. There can be no guarantee that an active trading market for ETF shares will develop or be maintained, or that their listing will continue or remain unchanged. Buying or selling ETF shares on an exchange may require the payment of brokerage commissions and frequent trading may incur brokerage costs that detract significantly from investment returns.

Securities in the ETF’s portfolio will not match those in any index. The active ETFs are benchmark agnostic, and corresponding portfolios may have significant non-correlation to any index. Index returns are generally provided as an overall market indicator. You cannot invest directly in an index. Although reinvestment of dividend and interest payments is assumed, no expenses are netted against an index’s returns. An indication of interest in response to this advertisement will involve no obligation or commitment of any kind.

Portfolio holdings will change and should not be considered as investment advice or a recommendation to buy, sell or hold any particular security. 

To view the top ten holdings for ARKX click here.

The information herein is general in nature and should not be considered financial, legal or tax advice. An investor should consult a financial professional, an attorney or tax professional regarding the investor’s specific situation. Certain information was obtained from sources that ARK believes to be reliable; however, ARK does not guarantee the accuracy or completeness of any information obtained from any third party. 

ARK Investment Management LLC is the investment adviser to the ARK ETFs.

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