The six defense primes behind 94% of our Defense and Aerospace index, including LMT, RTX, NOC and GD, ranked on fundamentals as the FY2026 budget tops $900B.
The ACCE Defense & Aerospace index carries a NAV of 990.44 as of late May 2026. Six names account for the vast majority of the weight. Understanding why those six were chosen, and how the tail positions are structured, tells you a lot about the thesis underpinning the whole portfolio.
The Core Six and How Weight Is Distributed
The index concentrates its exposure in a tight cluster of primes and systems integrators:
- GD (General Dynamics): 17%
- HII (Huntington Ingalls Industries): 16%
- NOC (Northrop Grumman): 16%
- LHX (L3Harris Technologies): 16%
- LMT (Lockheed Martin): 15%
- RTX (RTX Corporation): 14%
That is 94% of the index in six positions. The remaining 6% sits in TDG (TransDigm), with BWXT, KTOS, and LDOS each carrying effectively zero weight at this point.
The near-equal weighting across the top six is deliberate. These are not momentum bets. Each company holds long-cycle government contracts, often spanning decades, with cost-plus or fixed-price structures that produce predictable cash flows. Equal-weighting prevents any single program risk, say a Lockheed F-35 budget review or a Northrop B-21 cost overrun, from dominating index returns.
Why Primes, Not Disruptors
The defense sector has no shortage of exciting smaller names. KTOS (Kratos) builds autonomous drones. BWXT supplies nuclear propulsion systems. Both sit in the index at near-zero weight, not because the thesis is wrong, but because the index prioritizes capital preservation alongside participation.
Primes like GD, HII, and LMT have something smaller contractors lack: sole-source program positions. HII builds every nuclear-powered aircraft carrier and submarine the U.S. Navy operates. There is no second supplier. That structural monopoly on certain platforms creates a revenue floor that no amount of budget negotiation fully eliminates.
NOC's position in stealth and space systems, LHX's dominance in communications and electronic warfare, and RTX's engine and missile franchises follow the same logic. These businesses win contracts measured in years, sometimes decades, and the switching costs for the government are enormous.
The TDG Position: A Different Kind of Defense Exposure
TransDigm at 6% is the one outlier in the construction. TDG is not a prime contractor. It is a highly acquisitive manufacturer of proprietary aerospace components, selling to both defense and commercial aviation customers. Its business model, buying niche component makers with no direct substitutes and then pricing aggressively, generates margins that look nothing like a traditional defense prime.
The inclusion adds a commercial aerospace overlay to what is otherwise a pure government-contract book. When commercial air travel recovers or expands, TDG benefits in ways that GD and LMT do not. It is a quiet diversifier inside a sector that can look monolithic from the outside.
The Macro Setup Driving Defense Spending
NATO members have been under sustained pressure to hit the 2% of GDP defense spending target, and several European governments have moved well past it in their 2025 and 2026 budget cycles. Germany's constitutional debt brake reform, passed in early 2025, unlocked hundreds of billions in defense and infrastructure spending. Poland, the UK, and the Nordic countries have all announced multi-year procurement expansions.
This matters for U.S. primes because the export market is growing. Lockheed's F-35 backlog includes orders from European allies. RTX's Patriot missile systems are in active procurement discussions across multiple NATO members. GD's Abrams tank and Stryker vehicle programs have seen renewed international interest.
Domestically, the U.S. defense budget for FY2026 came in above $900 billion. The shipbuilding accounts, which directly benefit HII and GD's Bath Iron Works division, have been a particular focus given concerns about naval readiness relative to Chinese fleet expansion.
What the Tail Positions Signal
BWXT, KTOS, and LDOS sitting at zero weight is not a permanent statement. These positions exist as placeholders, ready to absorb capital if the index rebalances toward smaller-cap or more specialized exposure. KTOS in particular has attracted attention for its drone and autonomous systems work, a segment that the Department of Defense has been funding aggressively under the Replicator initiative.
LDOS (Leidos) brings IT services and intelligence community exposure, a different revenue profile than hardware-heavy primes. If the index shifts toward software-defined defense or cyber, LDOS would be the natural beneficiary within the existing structure.
Risks Worth Naming
Concentration in U.S. government spending creates a specific vulnerability: continuing resolutions and budget sequestration. When Congress fails to pass a defense appropriations bill on time, contractors operate under spending caps that delay new contract awards. The primes manage this through backlog, which typically runs several years deep, but prolonged budget uncertainty does compress near-term revenue recognition.
Valuation is the other consideration. Defense primes have re-rated meaningfully over the past 18 months as the geopolitical risk premium embedded in their stocks has expanded. The index does not carry valuation targets for its holdings, but the sector is no longer the deep-value corner of the market it was in 2022.
Program execution risk is real. Cost overruns on fixed-price development contracts have hurt margins at several primes in recent years. LMT's classified programs and NOC's B-21 Raider have both drawn scrutiny from the Pentagon's cost oversight office.
The Forward Picture
With a NAV of 990.44, the index sits just below the psychologically significant 1,000 level. The six-name core is built for a world where defense budgets stay elevated, allied procurement accelerates, and long-cycle programs continue to generate predictable cash flows. The tail positions in KTOS and BWXT represent optionality on the next generation of autonomous and nuclear-powered platforms. Whether those positions grow depends on how the rebalancing logic responds to program milestones and contract awards over the next two to four quarters.
