Defence-themed ETFs have not only launched – they are delivering strong performance, which in turn is attracting even more capital
The indices underlying these funds are soaring. For instance, the STOXX® Europe Defence index (capped) that Amundi’s new ETF will follow has returned about 40% in 2025 so far, vastly outperforming broader European indices. In March alone, the index jumped ~20.6%, reflecting the market rally discussed earlier. As a result, the ETFs tracking these benchmarks have become top-performers: the iShares EU Aerospace & Defense ETF (EUAD) was among the best-performing equity ETFs in Europe in Q1. Such returns naturally attract inflows from performance-chasing investors and asset allocators rotating into winning sectors. Indeed, during March, the VanEck Defence ETF saw over $1 billion of new money, and WisdomTree’s WDEF quickly grew to one of the largest thematic ETFs launched this year. These inflows create a reinforcing cycle: as the ETFs buy shares of underlying defence companies, they push prices higher, further boosting the ETF NAV and making the sector look even more attractive. There is also evidence of institutional uptake – for example, some European private banks have started including defence ETFs in their balanced portfolios for clients, something they wouldn’t have done two years ago. Another form of thematic vehicle are actively managed thematic funds: a few asset managers have either repurposed existing funds or launched new ones focusing on “Security & Defense”. For instance, one French asset manager renamed an infrastructure fund to include “securité” and shifted weight into defence stocks, explicitly to capture the trend. These active funds, alongside passive ETFs, add to demand. Capital mobilization via these vehicles is significant – the S&P Global report notes that just two new ETFs (WisdomTree and VanEck) combined for ~$2.5 billion inflows in Q1. That’s equivalent to the entire market cap of a mid-sized defence firm. Essentially, in a span of weeks, investors created funding equal to, say, one Saab or one Hensoldt, purely through secondary markets. While that money doesn’t directly go to companies (it’s buying existing shares), it benefits the companies by raising share prices and enabling future issuances. It’s also a gauge of investor confidence: such large, rapid inflows indicate broad conviction that defence is a smart place to be. It’s worth noting, too, that Eurex is launching futures on the STOXX Defence index this month, giving another avenue for capital and hedging. This will help institutionalize the theme – allowing hedge funds and others to take positions (long or short) at scale. In summary, the performance and growth of defence ETFs illustrate how capital markets are embracing the defence theme: delivering outsized returns and absorbing billions in capital, which ultimately supports the industry’s financing and growth.