According to the Stockholm International Peace Research Institute, military spending around the world is rising rapidly, having reached $2.9 trillion in 2025. Europe has led the way in this growth, with a 14% year-over-year (YOY) increase in military spending from 2024 to 2025. Not only are Russia and Ukraine continuing to pour more money into the ongoing war in that region, but a broader rearmament trend is boosting NATO spending; European NATO member military spending rose at its fastest pace since 1953 last year.
For U.S. investors, the easiest access point to the global defense industry is via major domestic players that have an international presence, like RTX (NYSE: RTX). However, these plays don't provide direct access to the European market, a segment that can be difficult for investors in other regions to explore. Fortunately, a growing number of defense exchange-traded funds (ETFs) can provide diversified exposure in a ready-made, easy-access portfolio. Beware, though, that not all of these defense ETFs focus exclusively on European names.
The Primary Pure-Play European Defense Fund, But Some Performance Issues Linger
For exclusively European aerospace and defense names, the best bet for many U.S. investors is likely to be the Select STOXX Europe Aerospace & Defense ETF (BATS: EUAD). Launched in late 2024, EUAD stands alone in the widening list of domestic ETFs for its regional focus on developed European nations. Despite its passive management, this unique exposure allows fund providers to increase the price. EUAD is on offer for an expense ratio of 0.50%, otherwise fairly high for a passive fund.
EUAD is also not an especially diversified fund: it has just 23 holdings, including companies deriving a majority of their revenue from making, servicing, supplying, or distributing equipment for European military defense and aeronautics, or related industries.
Investors can expect significant allocations to major producers like Rolls-Royce Holdings (OTCMKTS: RYCEY), Safran (OTCMKTS: SAFRY), and Airbus Group (OTCMKTS: EADSY), each of which accounts for between 17% and 21% of the overall portfolio.
The companies EUAD focuses on are all well-established, which may make the fund a good long-term buy-and-hold investment for investors concerned that, after 61% growth since launch, EUAD's biggest rally may be behind it for the time being.
A Globally-Focused Fund With Greater Diversification
The Global X Defense Tech ETF (NYSEARCA: SHLD) is a much larger fund than EUAD—it has several times the managed assets and a significantly higher one-month average trading volume approaching 2 million.
Its expense ratio also matches EUAD's exactly at 0.50%. However, SHLD is certainly not as direct a means of accessing the European market in particular. While SHLD offers exposure to key European defense players—companies like Rheinmetall (OTCMKTS: RNMBY) and BAE Systems (OTCMKTS: BAESY), among others—more than 62% of its portfolio is U.S. firms. Combined, British, German, French, and Italian companies make up about only about 20% of the total basket, although a handful of additional European nations bring that exposure up slightly.
Still, the 50 or so holdings in SHLD's portfolio have fared very well since the fund launched in the fall of 2023 and are up about 8% in the last year.
A Top-Performing Fund With an Active Approach
For an actively managed approach, one of the few options available to investors with a global focus is the U.S. Global Technology and Aerospace & Defense ETF (NYSEARCA: WAR), a fund holding some 30 defense industry names from around the globe. Like SHLD, WAR does not specifically focus on European names—however, its largest holding is Swedish defense contractor MilDef Group AB, and it also carries shares of Rolls-Royce and other prominent European companies.
WAR's industry purview is a bit broader than the funds above, as this ETF also holds firms involved in cybersecurity, data centers, semiconductors, and more.
Because it is actively managed, it has a slightly higher annual fee of 0.60%, as well as a much smaller asset base and trading volume than even EUAD above.
For investors primarily focused on recent performance, however, WAR stands out above these peers. The fund has returned an impressive 42% year-to-date (YTD. By comparison, one of the largest defense ETFs available to investors—the iShares U.S. Aerospace & Defense ETF (BATS: ITA), with nearly $14 billion in assets under management and a focus on North American companies—has returned only 12% YTD. Investors willing to spend a bit more may be handily rewarded by WAR's strategy.
The article "How to Invest in the Biggest European Defense Surge in Decades" first appeared on MarketBeat.
