The Surge in Defense Investments
The current arms boom in the financial markets is significantly driven by geopolitical crises and rising defense spending, particularly boosting defense ETFs. Fund managers are increasingly betting on defense stocks as uncertainties in the global security situation and growing military expenditures lead to a noticeable increase in stock prices.
Reasons for the Boom in Defense ETFs
- Geopolitical Crises: Russia’s attack on Ukraine, escalations in the Middle East, and tensions between China and the West have led to a worldwide increase in military spending.
- Rising Defense Budgets: Countries like Germany are significantly increasing their defense budgets despite debt brakes. For example, the Bundestag approved an additional 3.2 billion euros from the Bundeswehr special fund in April 2025, including for ammunition and armored vehicles.
- Market Reaction: The MSCI Europe Aerospace and Defense Index has increased by about 70% since the beginning of the year. US defense stocks have also performed strongly: The iShares US Aerospace & Defense ETF (ITA) gained over 25% since the start of the year, reaching new all-time highs.
- Current Crisis Effects: Since the beginning of the Israel-Iran crisis in mid-June, the European defense index has risen by nearly 6%, while the US defense ETF has increased by over 2%.
Development of ETFs
Since the beginning of 2024, eight new defense ETFs have been launched; alone in the spring of 2025, five were added – a sign of the great interest from investors in this sector. One example is the Future of Defence UCITS ETF from HANetf, launched in July 2023. It includes companies that generate revenue from NATO defense contracts. With a fund volume of over 2.5 billion USD, it is among the largest European defense ETFs and has achieved a performance of about +120% since its inception.
Opportunities and Risks for Retail Investors
While many professional investors are now actively investing in thematic funds such as AI or defense (18% according to the Global ETF Investor Survey), these products often play only a minor role in their portfolios – indicating risks. The strong emotional marketing of many new ETFs can lead retail investors to have high expectations; however, such thematic investments also carry volatility risks.
Summary: Geopolitical tensions are driving military spending worldwide – this leads to significant price gains in defense stocks and corresponding ETFs. New products in the market allow private investors to participate in this trend with attractive returns, such as the HANetf Future of Defence ETF (+120% since inception). Nevertheless, investors should also be aware of potential risks due to high volatility and political uncertainties.