Why Defence Industry ETFs Are Gaining Attention in 2025
As geopolitical tensions rise and global governments boost military budgets, investors are increasingly turning their attention to a once-overlooked sector — the defence industry. In particular, defence industry ETFs are gaining traction among those looking to add resilience and diversification to their portfolios.
From the war in Ukraine to ongoing unrest in the
Middle East and mounting concerns in the Indo-Pacific, the global security landscape has changed dramatically. As a result, defence sector ETFs have emerged as a compelling investment opportunity in 2025.
What Are Defence ETFs?
A defence ETF (exchange-traded fund) offers exposure to a basket of companies that operate in the aerospace, security, and weapons sectors. These funds typically include a mix of defence contractors, weapons manufacturers, military tech firms, and government suppliers.
Rather than investing in a single defence company — such as BAE Systems or Lockheed Martin — an ETF allows investors to gain diversified exposure across the defence industry, helping to reduce individual stock risk.
Why Investors Are Taking Notice
The global defence sector is experiencing a resurgence. Following years of relative stagnation, many countries are now ramping up military expenditure in response to international instability. NATO allies are increasing defence spending targets, and emerging nations are modernising their armed forces.
This surge in funding is good news for defence companies and, by extension, those holding defence fund ETFs. Many of these firms are reporting stronger earnings, long-term government contracts, and robust order books. That reliability appeals to investors seeking defensive plays in a time of uncertainty.
Moreover, defence contractor ETFs offer a level of inflation protection. Since many government contracts are inflation-linked, revenue streams remain relatively stable even as prices rise — a key concern in 2025.
Popular Defence ETFs and Key Holdings
Several well-known ETFs are leading the charge in this sector. While some are listed in the United States, UK investors can access them through platforms offering global markets.
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iShares U.S. Aerospace & Defense ETF (ITA) – Holds major players like Raytheon Technologies and Lockheed Martin.
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SPDR S&P Aerospace & Defense ETF (XAR) – Offers a more equal-weighted approach, spreading exposure across both giants and mid-sized firms.
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Invesco Aerospace & Defense ETF (PPA) – Includes not only defence contractors but also aerospace tech firms and systems integrators.
Common holdings across these defence ETFs include:
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Lockheed Martin – A leader in military aircraft and missile systems.
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BAE Systems – A UK-based giant involved in naval, air, and cyber defence.
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Northrop Grumman – Known for its stealth technology and autonomous systems.
These defence ETF stocks provide access to companies that benefit directly from rising global defence priorities.
Ethical Considerations and Investor Responsibility
Investing in the defence industry ETF space does raise ethical questions. Some investors are uncomfortable supporting businesses linked to weapons and warfare. Certain ESG (Environmental, Social and Governance) funds even exclude defence companies from their portfolios altogether.
However, others argue that defence investing is not necessarily about promoting conflict. It can also be viewed as contributing to national security, peacekeeping, and the development of advanced cybersecurity and satellite systems.
This is where each investor must decide where they stand. Like all investments, defence company ETFs come with a mix of financial and ethical considerations.
Should You Consider Defence ETFs?
If you're looking for exposure to a sector that often thrives in times of geopolitical instability, defence sector ETFs might be worth a look. They offer potential for long-term growth, often benefit from government support, and can help hedge against market volatility.
That said, they’re not immune to risks. Regulatory changes, public sentiment, and defence budget cuts can all impact performance. As always, diversification is key — ETF defence industry exposure should be balanced with other sectors in your portfolio.
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Final Thoughts
In 2025, the world feels more uncertain than ever — but with that uncertainty comes opportunity. Defence ETFs aren’t for everyone, but they offer a strategic option for those who understand the risks and rewards of the sector.
Whether you're driven by macroeconomic trends or looking to shield your investments from market shocks, defence industry ETFs provide a modern way to engage with a critical and resilient sector.