In the current turning point, defense funds have experienced a rapid increase, making them particularly interesting for private investors. This development is closely tied to the geopolitical situation and the resulting investments in the defense sector. In this context, ETFs (Exchange-Traded Funds) are an attractive option for investors looking to invest in the defense sector.
Differences between ETFs and Active Funds
ETFs are passively managed funds that replicate a specific index. They offer broad diversification and are generally cheaper than active funds. In the defense sector, there are several ETFs that focus on different aspects of the sector:
- VanEck Defense ETF: Invests in companies that generate at least 50% of their revenue in the military or defense sector. This ETF has achieved an impressive return of 65% over the last twelve months.
- HANetf Future of Defence UCITS ETF: Provides access to a globally diversified portfolio of companies based in NATO countries. This ETF has increased by 55% over the last twelve months.
- iShares Global Aerospace & Defence ETF: Focuses on traditional defense companies and has achieved a return of 37% over the last twelve months.
Active funds, on the other hand, are actively managed by fund managers who attempt to outperform market performance. They are often more expensive than ETFs due to higher management fees. Examples include the defense funds from Deka and LBBW, which are significantly more expensive than passively managed ETFs, with annual costs of over 1.5% plus subscription fees.
Highest Returns Achieved So Far
The highest returns in the defense sector have been achieved by ETFs in recent months:
- VanEck Defense ETF: 65% in the last twelve months.
- HANetf Future of Defence UCITS ETF: 55% in the last twelve months.
- Global X Defence Tech ETF: 41.5% in the first six months of 2025.
These returns are impressive; however, it should be noted that the defense sector is also associated with significant risks. Investments in this sector can heavily depend on geopolitical developments and are therefore volatile.
Risks and Considerations
Investors should be aware of the following risks:
- Geopolitical risks: Conflicts and political tensions can influence the value of investments.
- Market volatility: The defense sector can experience significant fluctuations.
- Ethical considerations: Some investors may have ethical concerns regarding investments in the defense sector.
Despite these risks, defense ETFs offer a cost-effective and diversified way to invest in the defense sector. However, investors should conduct careful research and adjust their investment strategy according to their risk tolerance and ethical considerations.