This is an active ETF in which the management team selects holdings directly instead of tracking an index. It holds defense contractors together with defense technology companies expected to benefit from rising government defense and security spending.

It suits investors who want concentrated exposure to the long-term theme of expanding security spending but prefer to leave stock selection to a management team.

The ETF is managed by BlackRock (iShares) using an active management approach.

The management team selects companies expected to benefit from expanding global defense and security budgets. Beyond aerospace and finished defense systems makers, the fund includes industrial companies such as engineering and machinery firms, as well as technology companies whose products serve defense and security uses, which broadens its thematic exposure.

• Reflects new order flow through the management team's discretionary selection rather than index replication
• Covers defense application technology companies in addition to finished defense systems makers
• Not limited to the US, as it also holds overseas defense contractors

Assets under management (AUM) stand at $3.7B, and the expense ratio is 0.55% per year.

Because the fund is actively managed, its fee burden is somewhat higher than that of passive industrials ETFs. In return, it is not bound by index inclusion rules and has room to reflect changes in the order environment.

The defense theme clearly tends to move with the external policy environment and the course of national budget proposals. Volatility is high: the theme gains during periods of expanding security spending and corrects when budget talks are delayed.

When discussion of higher defense budgets comes to the fore, money repeatedly flows into theme ETFs across the board. Active products often have limited assets in their early days after launch, so it is worth checking trading volume and bid-ask spreads in advance.

Its strength is concentrated investment in the structural theme of security spending, while sector concentration and policy dependence are its weaknesses.

Information on listed products in the same category that can be compared in a table is limited, so it is better to look at this from an asset class perspective. If you want index exposure to US aerospace and defense, passive products such as ITA and XAR are alternatives. To broaden out to the industrials sector as a whole, consider XLI, and to extend the defense theme globally, consider SHLD, comparing differences in fees and holding methods.

Here are the items to check before investing. With theme ETFs, what you monitor while holding matters more to performance than when you enter. We recommend reviewing four items in order: cost, liquidity, regional composition and policy trends.

Because defense budgets and the external policy environment drive the trend, a single news item can trigger sharp swings. The sector is narrow, so it is also hard to expect defensive strength when the overall market declines.

The fund suits investors who want to hold the expanding security spending theme as a satellite asset in their portfolio. Limit the position size and check trading volume and fees before investing.