Detlef Glow, MBA (UoW)
Robin Marshall
Tajinder Dhillon, CFA,
Defence-themed ETFs and mutual funds have surged in popularity as NATO members commit to significantly higher defence spending. This analysis examines fund flows, asset allocation, costs, valuations and macro risks to assess whether defence investing represents a durable long-term opportunity or a crowded thematic trade.
Key findings from the analysis
- Defence-themed ETFs dominate investor demand
European investors strongly favour ETFs over mutual funds, with ETFs accounting for over 93% of total assets, driven by liquidity, transparency and cost efficiency. - Flows are concentrated — and valuations are stretched
Inflows are heavily concentrated in a small number of ETFs, while defence stocks trade at historically high valuation multiples, increasing sensitivity to geopolitical news. - Defence is now a long-term theme — but execution risk remains
NATO’s 5% GDP defence spending target strengthens the structural case, yet funding uncertainty, political cycles and fiscal constraints pose ongoing risks.
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