Since United States President Donald Trump pressed the reset button with the country’s traditional military allies, more notably NATO, there’s been an uncanny investor lurch towards defence funds. However, renewed investor interest in defence-related ETFs appears to be out of whack with the direction in which the underlying shares are heading.
Global defence stocks, the one-time poster children of the post-Covid rally, staged a pull-back earlier this year – hitting extreme valuation levels – with some stocks having already corrected 50% after rallying in some cases more than 50%.
As a case point, companies like Garden Reach Shipbuilders and Engineers (GRSE), Hindustan Aeronautics Limited (HAL), Cochin Shipyard Limited (CSL), and Bharat Dynamics Limited (BDL) were trading at more than 80 times their price-to-earnings (P/E) ratios, double the industry average of 40x TTM (trailing twelve months) earnings.
NATO has pulled its own weight
What’s driving defence stock growth notes VanEck’s head of investments is the uptick in government-funded defence spending, with Germany committing to the biggest budget increase of its European counterparts.
Across all NATO members, budget spending on defence is projected to rise between 2.3% and 2.5% due to Trump’s measures designed to ensure its so-called allies pull their own weight on military spending.
Is entry into defence ETFs timely?
Ironically, while current valuations make these companies unappealing to individual stock-pickers, local investors appear to be ploughing into defence-themed ETFs with a reverence previously reserved for a safe-haven like gold.
Global investors have tipped around US$4 billion into defence ETFs in calendar year 2025, with funds in the world’s largest defence fund, IShares ITA Aerospace and Defence Fund (ITA) now exceeding US$6 billion.
Here in Australia defence as a sub-sector of overall ETFs is a much more modest affair.
However, funds now exceed $100 million, with 40% of that inflow invested in the last five months.
Fund flow into ETF issuers like VanEcks DFND fund and Betashares ARMR fund, and Global X DTech fund is all up around 20% year to date.
How are these ETFs performing?
With that in mind, Azzet sought insights into whether the performance of these ETFs warrants renewed investor appetite for them.
1) VanEcks DFND fund (ASX: DFND) offers investors exposure to a portfolio of listed global companies involved in the military or defence industries.
Market cap is $35 million; share price over one year is up 48% and 26% year to date.
NAV: $29.45
Total Net Assets: $58.17 million.
Management fee (p.a.) 0.65%.
Dividend Frequency: Annually.
2) Betashares ARMR fund (ASX: ARMR) provides exposure to up to 60 leading companies that derive more than 50% of their revenues from the development and manufacturing of military and defence equipment, plus defence technology, including Lockheed Martin, BAE Systems, General Dynamics and Palantir Technologies.
Market cap is $27 million; share price is up 33% in one year and up 19% year to date.
NAV: $20.07
Total Net Assets: $39,127,080
Management fee (p.a.) 0.55.
Dividend Frequency: At least annually.
3) Global X Defence Tech ETF (ASX: DTEC) provides investors with access to companies at the forefront of defence innovation. As global security concerns shift towards more technology-driven solutions, DTEC captures the sectors driving defence's future. This includes AI, drones, and cybersecurity.
Market cap is $6 million; share price is up 33% in one year and up 28% year to date.
NAV: $13.59
Total Net Assets: 14,950,776.05
Management fee (p.a.) 0.50%
Dividend Frequency: Semi-annually.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
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