In fact, Boeing's stock has plummeted over 25 per cent year-to-date due to safety concerns within their commercial fleet, issues largely unrelated to their defence operations.
European ETFs targeting defence theme
ETF name | Ticker | Ongoing charge (%) | Fund size (EUR) | Fund type | Industrial exposure (%) | Information technology (%) | Number of holdings |
VanEck Defense ETF A USD Acc | DFNS | 0.55 | 744,425,189 | Thematic | 92 | 8 | 28 |
Future of Defence ETF Acc | NATO | 0.49 | 364,959,776 | Thematic | 66 | 34 | 59 |
iShares Global Arspc & Dfnc ETF USD Acc | DFND | 0.35 | 73,650,637 | Sector | 100 | 0 | 65 |
| Source: Morningstar Direct, Morningstar Research | |||||||
By opting for a thematic fund over a sector fund, investors can more precisely align their investments with the target theme.
Both Nato and DFNS select focused defence players by targeting companies that derive at least 50 per cent of their revenues from military or defence industries.
This shared screening threshold results in significant overlap in holdings, but the crucial difference lies in how each fund defines defence. DFNS has a narrower focus on traditional defence companies, leading to more than 90 per cent exposure in the industrials sector.
In contrast, Nato adopts a broader definition of defence, incorporating more cyber security firms.
This approach results in more than a third of its exposure being in the technology sector, creating a more growth-oriented investment profile.
Cyber security now forms a key part of modern warfare and the Nato alliance has repeatedly pledged commitment to cyber defence. This means many specialists in the field will also be set to benefit from increased defence spending.
Despite its more comprehensive definition of defence, Nato still favours the key European defence players, with BAE Systems, Thales, Leonardo, and Rheinmetall highlighted above collectively accounting for one-fifth of fund exposure.
It’s hard to see the tailwinds dissipating anytime soon for the defence sector, particularly as governments, such as the US and UK, feel more compelled to throw their weight behind the sector in an important election year.
With conflicts continuing in the Middle East and in Ukraine, the direction of travel is towards greater defence spending in the short and medium term. These factors will continue to be supportive of defence ETFs, explaining why investor optimism in the sector remains strong.
Michael Field is European equity market strategist and Kenneth Lamont is senior analyst at Morningstar
