As geopolitical tensions flare across the globe, the financial industry is capitalizing on rising defense spending by launching a new wave of exchange-traded funds (ETFs) focused on companies involved in national security, military technology and defense infrastructure.
In recent months, there has been a notable shift in the investment community. While cryptocurrencies once made headlines with the launch of various crypto-focused ETFs, the rapidly changing geopolitical landscape has shifted investor interest towards defense ETFs.
The move reflects a broader response to escalating global instability, including ongoing conflicts such as the war between Russia and Ukraine, growing tensions in the Middle East, disputes in the South China Sea and to growing concerns about cybersecurity threats.
A recent report from the Stockholm International Peace Research Institute (SIPRI) indicates that global military spending increased by 7 percent to reach $2.43 trillion in 2023, the largest annual increase since 2009, with with projections suggesting they could reach $3.1 trillion by 2030.
“We are now seeing a resumption of defense spending for the benefit of arms manufacturers, many of which are listed on stock markets. At the same time, investors are looking for a hedge against escalating military conflicts that could impact other investments,” Oliver said.
Last week, Globalrobotics, cybersecurity systems and artificial intelligence.
VanEck, which launched its own defense ETF (ASX:DFND) in September, was the first to introduce a defense-focused product on the ASX, highlighting the growing importance of the sector given growing global instability .
This week, Betashares joined the trend by unveiling its Global Defense ETF (ASX: ARMR). The fund provides access to a portfolio of up to 60 companies that derive more than 50 percent of their revenue from the defense industry.
The rise of defense ETFs reflects a reality that many investors are beginning to accept: Global military spending is on the rise and shows no signs of slowing down.
Arian Neiron, VanEck CEO for Asia Pacific, acknowledged this shift, noting: “Unfortunately, the world has changed since the days of celebrating the peace dividend. Where countries once touted the economic benefits of reducing defense spending, they are now increasing their military spending.”
Betashares CEO Alex Vynokur echoed this sentiment, highlighting the “strong projected revenue and cash flow growth” for many ARMR portfolio companies, driven by increased global defense spending.
At the same time, investors need to be careful, Oliver urged.
He warned that while the launch of defense-focused ETFs “makes sense” and is “a sign of the times,” investors “just need to be wary that, like the first Cold War, it will wax and wane over time, leading to a lot of volatility in defense stocks.”
“They should be wary of their purchases after already experiencing a big rise and being overpriced and over-loved.”
