The ACCE Defense & Aerospace index holds 10 names across GD, HII, NOC, LHX, LMT, RTX and more. Here's what the index owns, how it's weighted, and why.
The ACCE Defense & Aerospace index launched with a NAV of 1000.27, essentially flat from inception. That near-par NAV is deceptive. Underneath it sits a concentrated, high-conviction portfolio of ten names spanning prime contractors, electronics specialists, and nuclear propulsion, built around a thesis that defense budgets in NATO countries and the Indo-Pacific are structurally higher for the rest of this decade than they were in the 2010s.
This post breaks down what the index holds, how the weights are distributed, and what the construction logic reveals about where ACCE sees durable earnings power in the sector.
What the Index Owns
The top six positions account for virtually all the economic exposure. General Dynamics (GD) leads at 17%, followed by Huntington Ingalls Industries (HII) and Northrop Grumman (NOC) at 16% each, L3Harris Technologies (LHX) at 16%, Lockheed Martin (LMT) at 15%, and Raytheon Technologies (RTX) at 14%. That's 94% of the index in six names.
The remaining four, TransDigm Group (TDG) at 6%, BWX Technologies (BWXT), Kratos Defense & Security Solutions (KTOS), and Leidos Holdings (LDOS), each carry negligible weight at present. Their inclusion reads more as optionality than conviction, placeholder positions that could be scaled if the thesis on each matures.
The Weight Logic
The near-equal weighting across GD, HII, NOC, LHX, LMT, and RTX is a deliberate choice. These six companies collectively cover almost every major defense platform category: submarines and surface combatants (HII), intercontinental ballistic missiles and stealth bombers (NOC), fighter jets and missile defense (LMT), electronic warfare and communications (LHX), armored vehicles and business jets (GD), and missiles plus jet engines (RTX).
No single contract loss, program delay, or budget line cut can meaningfully impair the index because the exposure is spread across land, sea, air, space, and cyber domains. That diversification within a single sector is the structural argument for holding the index rather than picking individual names.
TransDigm (TDG) at 6% is the one outlier in terms of business model. TransDigm is not a prime contractor; it manufactures highly engineered aerospace components, many of them sole-sourced, and generates margins that most defense primes would envy. Its inclusion adds a different earnings quality profile: less dependent on government contract cycles, more exposed to commercial aerospace aftermarket demand.
The Small-Cap Tier: BWXT, KTOS, LDOS
The three near-zero positions deserve a closer look because they signal where the index could evolve.
BWX Technologies (BWXT) is the dominant supplier of naval nuclear reactors and fuel for the U.S. Navy. As the Virginia-class submarine program accelerates and the Columbia-class ballistic missile submarine enters full-rate production, BWXT's order book grows almost automatically. The current negligible weight likely reflects valuation discipline rather than a lack of conviction on the business.
Kratos Defense (KTOS) is the most speculative of the three. It builds low-cost tactical drones and hypersonic test vehicles, two categories that have moved from niche to mainstream in defense procurement conversations since Ukraine demonstrated the battlefield economics of attritable unmanned systems. If drone warfare continues to reshape procurement priorities, Kratos could see its weight increase materially.
Leidos (LDOS) sits at the IT and intelligence services end of the defense spectrum. It is less hardware-intensive than the primes, which makes it less capital-intensive but also less differentiated. Its inclusion gives the index some exposure to the growing defense IT budget, which has expanded as the Pentagon modernizes logistics, cybersecurity, and command-and-control infrastructure.
Why Defense, Why Now
The geopolitical backdrop is not subtle. NATO members committed at the 2024 Washington summit to raise defense spending targets, and several European governments have since announced multi-year budget increases that will flow directly to the primes and their supply chains. Germany's constitutional debt brake amendment, passed in early 2025, unlocked hundreds of billions in defense and infrastructure spending. That money does not evaporate quickly; it converts into multi-year contracts with cost-plus structures that protect margins.
In the Indo-Pacific, the U.S. defense budget continues to prioritize naval shipbuilding, long-range strike, and integrated air and missile defense, all of which map directly to HII, LMT, NOC, and RTX.
The index also benefits from a structural feature of defense contracting that pure-growth investors often underweight: backlog visibility. Lockheed Martin, Northrop Grumman, and General Dynamics each carry backlogs measured in years of revenue. That visibility compresses earnings uncertainty in a way that consumer or technology businesses rarely achieve.
What the Index Does Not Own
Absences are as informative as inclusions. The index has no exposure to Textron (TXT), Curtiss-Wright (CW), or Mercury Systems (MRCY), smaller-cap names that have attracted attention as drone and electronic warfare spending rises. It also excludes pure-play cybersecurity firms that serve the defense sector, keeping the portfolio anchored to hardware-intensive platforms where barriers to entry are highest.
The exclusion of European primes like BAE Systems, Airbus (AIR.PA), or Rheinmetall (RHM.DE) is notable given the European rearmament story. That may represent a deliberate U.S.-only scope for the index, or it may be an area where a future rebalance adds international exposure.
NAV at 1000.27: Reading the Starting Point
A NAV this close to par on an index that has been live through a period of significant defense budget news suggests either a recent launch or a rebalance that reset the base. Either way, the near-1000 level means the index's performance record is essentially clean, making this a useful baseline for tracking how the thesis plays out over the next 12 to 24 months.
The core question for the index going forward is whether the six large primes can sustain earnings growth as their backlogs convert to revenue, or whether cost overruns, labor shortages in the defense industrial base, and congressional budget negotiations create the kind of program delays that have historically compressed margins. The index's construction, with its equal-weight approach across the six majors, is a bet that those risks are diversifiable rather than systemic.
As European rearmament spending moves from political commitment to signed contracts, the names in this index with the strongest international revenue exposure, particularly RTX and LHX, will be the first to show it in their order books.
