The development of defense stocks and the European Defence Index reflects the current geopolitical challenges and the accompanying realignment of European defense policy. In recent years, defense stocks have proven to be particularly profitable, primarily due to increased defense spending in Europe.
Positive Development of Defense Stocks
Strong Performance: European defense stocks have achieved exceptional returns over the past three years. According to the STOXX® Europe TM Defense Index, the return over three years was 239 percent, with a remarkable 52 percent in 2025 alone.
Triggers: The ongoing geopolitical tensions – especially the Russian war of aggression against Ukraine – and the heightened security needs in Europe have led to a significant increase in defense spending.
Investor Interest: Many investors are strategically using ETFs and thematic funds to benefit from the boom in the defense sector. The demand for specialized products has significantly increased, as classic indices often also include civilian companies, providing less targeted exposure.
European Defence Index: A Strategic Tool
Objective: The STOXX® Europe TM Defense Futures was developed to specifically represent European companies whose business has a substantial share in defense-related activities.
Index Composition: The underlying index consists of European companies with proven revenue exposure in the defense sector. This allows investors a clear focus on pure defense stocks.
Launch: On May 12, 2025, the new futures product was launched at Eurex to provide investors with an efficient way to hedge or speculate on the sector.
Background: Increasing Defense Spending in Europe
Budget Increases: The European Commission expects investments of up to 800 billion euros in defense over the next four years. Germany is additionally planning a massive economic stimulus of around 500 billion euros over twelve years to modernize its industry and infrastructure.
Percentage of GDP: While Europe has previously spent about two percent of GDP on defense, an increase to up to 3.5 percent is being discussed – a clear signal for a turnaround after decades of underinvestment.
Political Initiatives: The EU is promoting industrial capacities and resilience in security and military technology with programs like the European Defence Fund.
Outlook for Investors
The boom in European defense stocks is expected to continue:
- Attractive Valuations: Compared to the US market, European stocks are still relatively cheaper (CAPE ratio), offering additional opportunities.
- Sustainable Demand: As long as geopolitical uncertainties remain or worsen (e.g., due to further conflicts or trade disputes), interest in defensive investments will remain high.
- Broader Economic Stimuli: Higher government spending not only has a positive impact on the sector itself but also strengthens other areas such as industry and technology through modernization boosts.
For German-speaking investors, these developments are particularly relevant: They can benefit from the current trend both directly through individual stocks and indirectly through specialized ETFs or new financial products like the STOXX® Europe TM Defense Futures.
“Expansionary policies […] renewed focus on industrial growth and stronger corporate balance sheets should support investor optimism.”