With rising global tensions and increased military spending across Europe, defence ETFs have caught the attention of many investors looking to capitalise on this growing sector.
But choosing the right defence ETF isn't straightforward. With limited options in Europe, varying expense ratios, and ethical considerations, you might wonder if specialising in this sector is worth the complexity.
This guide walks you through the best defence ETFs available to European investors in 2025, helping you decide whether these specialised funds deserve a place in your portfolio or if a more broadly diversified approach might better serve your long-term financial goals.
Why investing in a defence ETF makes sense
In today’s uncertain economy and tense geopolitics, defence ETFs are a great way to diversify your portfolio. These ETFs target companies in military equipment, cybersecurity, aerospace, and defence technologies. These sectors often remain strong, even when markets fall.
Defence spending tends to operate on different cycles than consumer markets. Countries keep defence budgets steady, no matter the economy. This gives defence contractors a steady source of income. So when the economy slows, defence stocks can stabilise your investment portfolio.
Beyond stability, the defence sector is experiencing significant technological innovation. Today’s defence companies don’t just make traditional military gear. They also develop cutting-edge tech in areas like AI, space systems, and cybersecurity. These advancements open up growth opportunities beyond traditional defence. They could provide stronger long-term returns.
European investors are seeing more defence spending due to geopolitical issues on the continent. Several EU countries are meeting NATO spending goals. This is good news for companies in this sector. This trend shows that defence investments might get ongoing government support in the years ahead.
How to choose the best defence ETF
There are several criteria to look out for when selecting the best defence ETF:
- Underlying index. There are several indexes that track the defence industry. Each has different criteria on which companies to include, resulting in different performance.
- Diversification. As they say, diversification is the only free lunch in investing. ETFs that invests in many companies and that are more diversified have our preference.
- Cost. Fund managers charge a fee for managing their funds. The total cost of a fund is indicated by the total expense ratio (TER). Naturally, the lower the better! Due to their specialised nature, defence ETFs tend to be more expensive than more broadly diversified ETFs.
- Currency. If you buy an ETF that is not traded in Euro (€), the broker will likely convert it for you. But this comes at an additional cost due to the currency conversion.
- Size. Larger funds are less likely to be shut down.
The best defence ETFs
There are 4 defence ETFs available to us in Europe:
Historical performance
The defence indexes are all fairly recent, so we don't have much data. Over the last year, their performance has been fairly similar, with a slight advantage for the MarketVector Global Defense Industry index and the EQM Future of Defence index.
If we take out the S&P Developed BMI Select Aerospace & Defense 35/20 Capped index, which was launched only in November 2023, we see that a similar trend appears over a longer time period:
Cost
The two ETFs that track the S&P indexes, namely the iShares and Invesco ETFs, have a lower total expense ratio of 0.35%. But we saw that the historical performance of their index is also poorer. So we're unsure how much the ~0.20% difference in cost really matters.
Diversification
The ETF by VanEck is the most concentrated, investing in only 28 defense companies. That makes it a bit weaker in our view compared to the other ETFs.
Size
A guideline we like to use is to invest in ETFs that have at least €100m invested. Above that threshold, the fund provider is less likely to shut down an ETF because it’s not profitable. That's why the Invesco ETF poses a risk in that respect.
Conclusion
All ETFs provide a way for investors to gain exposure to the growth of the defence industry. The HANEtf ETF has the best historical performance and a good level of diversification. It's also a large fund, meaning that it's unlikely that it will shut down soon.
How to buy a defence ETF
There are three steps:
- Choose the best defense ETF for you, using our comparison above.
- Open an account with a broker. Our comparison of brokers can help you choose.
- Place an order!
Why a defence ETF may not be a great idea
There are several compelling reasons why defence ETFs might not be ideal.
Concentrated sector risk
When you invest in a defence ETF, you're placing your money in a single sector of the economy. This concentration raises your portfolio's risk and volatility. It’s riskier than a well-diversified approach.
A broader market ETF lets you invest in many sectors. It includes defence companies when they do well. But it also balances with other industries that may succeed when defence struggles.
Unpredictable performance cycles
Defence spending goes up during conflicts but usually gets cut in peaceful times or when the economy is weak. This cyclical nature makes performance harder to predict than broader market trends.
ESG considerations
You may care about environmental, social, and governance (ESG) factors. Defence companies usually rank low on ESG metrics. This is due to their links with weapons making and military conflicts. These ties may not match your values.
Higher expense ratios
Defence ETFs often have higher expense ratios than broad market index funds. These fees eat into your returns over time—sometimes significantly.
Active choice
Investing in a defence ETF is a form of active investing, because we choose to be more exposed to that sector than its market cap may warrant. But data shows that a passive approach usually leads to better returns.
Curvo: a sensible alternative to invest globally
The difficulties of managing your own portfolio of ETFs
Choosing a single ETF, for instance a defence ETF, is not the entire story when investing your life savings. Stocks are a risky asset class, and not everyone can psychologically handle their fluctuations. To bring success over the long term, you need to build a portfolio of ETFs that is suited to your goals, your appetite for risk and your capacity for taking risks. But this is not an easy task as there are thousands of ETFs to choose from. Furthermore, this portfolio of funds needs to be kept in balance over time, and adapt to changes in your life situation. When managing your own portfolio, these responsibilities fall onto you.
We saw most of our friends not investing because of these difficulties. Or they tried but stopped after a while because they didn't trust themselves enough to make the right financial decisions for their future. Yet, we think investing in ETFs or index funds is a powerful tool to improve our financial well-being. That's why we built Curvo: to take care of all the complexities of good investing so you don't have to worry.
Index investing without hassle
Curvo addresses the challenges of managing your own investments through a broker and trying to select ETFs yourself:
- Portfolio of index funds built for you. You are asked a few questions at the start to learn about you and your goals. Based on your answers, you are matched with the best portfolio of index funds for you.
- Diversification. We firmly believe in the power of diversification to lower risk and seek investment returns. Each portfolio consists of over 7,500 companies, diversified across sectors and countries.
- Invest sustainably. Your investments focus on one guiding principle: don’t invest in companies that are considered destructive to the planet. Sectors like non-renewable energy, vice products, weapons and controversial companies are all excluded.
- Rebalancing done for you. No need to worry about keeping your portfolio in balance, rebalancing is done for you.
- Fractional shares. All your money is invested. There’s no cash left sitting on the side.
- Automated monthly investing. Set up your monthly plan and get peace of mind that your money is working for you.
- Start from €50. No need for a large lump sum to get started.
- Project your savings into the future. Through Curvo you can see how much your portfolio is expected to be worth in the future. You can answer questions like “how will increasing my monthly contribution by €50, €100 or €200 affect my long-term savings?” to give a concrete idea for the “future you”.
- Withdraw anytime. There’s no long-term contract or exit fees if you wish to stop investing.
Our conclusion
Defence ETFs can be an interesting component of your investment strategy, especially during times of geopolitical tension. However, as we've discussed, they come with significant trade-offs including higher fees, concentrated sector risk, and potential misalignment with ESG values. Before investing, carefully consider whether these specialised ETFs truly complement your overall financial plan and risk tolerance.
When we started investing ourselves, we found that managing a portfolio of different ETFs was time-consuming and stressful. That's why we created Curvo – to make index investing accessible to everyone. Instead of worrying about which ETFs to choose, rebalancing percentages, or dealing with fractional shares, Curvo handles everything in one simple app. Curious about how a professionally managed index portfolio could work for you? Learn how Curvo works and discover how easy investing can be.