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Last week, when Russian drones intruded on Polish airspace, Poland responded by taking them down, the first time a NATO member struck since the Russia-Ukraine war began. This move rattled defense ministers as well as Wall Street. Investors piled into defense ETFs, betting that more aerial violations and NATO escalations will keep fueling military spending for years to come.
The Select STOXX Europe Aerospace & Defense ETF (BATS:EUAD) was the largest gainer, rising 7% since the Sept. 9 incident. In contrast with its U.S. competitors, EUAD’s Europe-centric approach directly draws from the defense ramp-up in the region.
European defense contractors are leading their U.S. counterparts at the exchanges now, helped by NATO’s landmark June 2025 commitment to double defense spending to 5% of GDP. That pledge secures a multi-year deal book of contracts for firms producing everything from missile systems to radar defense.
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The Global X Defense Tech ETF (NYSE:SHLD) also jumped 7%. SHLD isn’t exclusively U.S.-focused: although 57.9% of its assets are American, nearly 20% of the portfolio is divided between Britain and Germany, offering investors a diversified bet on both sides of the Atlantic arms race.
The American-heavy funds have been more stable but still strongly positive. SPDR S&P Aerospace & Defense ETF (NYSE:XAR) rose 4.2%, while iShares U.S. Aerospace & Defense ETF (BATS:ITA) rose 3%. The Invesco Aerospace & Defense ETF (NYSE:PPA), with 96% exposure to the U.S., added 2.5%.
These ETFs include defense giants like Lockheed Martin Corp (NYSE:LMT), RTX Corp (NYSE:RTX), and Northrop Grumman Corp (NYSE:NOC) that historically outperform whenever the world security order appears weaker than usual.
What distinguishes this rally from the rapid spikes that have happened in previous flare-ups is policy. NATO’s minimum spend is up from 2% to 5%.
That implies governments are essentially subsidizing growth in the sector for the foreseeable future. For ETFs, this makes defense a structural allocation rather than a speculative geopolitical trade.
While Eastern European skies continue to be in flux, defense ETFs are being hailed as core holdings for those investors searching for resilience with a chance to catch a tailwind.
The battlefield is thousands of miles away, but on Wall Street, it’s defense funds that are on the offensive.
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