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In the U.S., investors and voters are accustom to hearing about the massive amounts of money this country spends on defense. Two years ago, this country spent 3.4% of the world’s largest GDP on defense. Last year, the U.S. accounted for 40% of global defense spending.
The $997 billion Uncle Sam spent on defense last year was more than triple the sum allocated by China and more than the next nine biggest spenders combined. However, markets are efficient and if industry-specific government spending was all it took for stocks to move higher, aerospace and defense equities and the related funds would frequently be among the best-performing assets, but that’s not the case.
That doesn’t diminish the allure of exchange traded funds such as the Global X Defense Tech ETF (SHLD). Not on the heels of $2.7 trillion in global defense expenditures last year – a figure that’s poised to increase as more European nations increase their defense budgets. Putting $2.7 trillion into context, that’s enough to be the fourth-largest American company by market capitalization.
SHLD, which tracks the Global X Defense Tech Index, is having a moment. Rather, it’s having plenty of moments this year. It’s up 56.13% year-to-date and more than half its $2.66 billion in assets under management have arrived since the start of 2025. Impressive data points to be sure, but they don’t imply the ETF’s upside from is here capped.
Sizing Up SHLD
The war in Ukraine, the specter of direct U.S. involvement in the Iran/Israel conflict and other geopolitical issues are stirring interest in aerospace ETFs, including SHLD. So is the point that global defense expenditures are rising at their fastest clip in decades.
Those are potential tailwinds for SHLD and friends, but those matters also underscore the importance of understanding the differences between SHLD and the legacy ETFs in the aerospace and defense category. Indeed, SHLD lives up to its defense tech billing.
For example, the fund allocates 8% of its weight to Palantir (NASDAQ: PLTR). Just four ETFs have larger weights to that stock, none of which are aerospace and defense funds. Point is defense is an epicenter of technological innovation and it’s not a stretch to say that gone are the days of traditional warfare.
“A global rearmament cycle is now underway, fueled by rising geopolitical tensions, advances in technologies like AI, and new threats such as swarms of low cost and autonomous drones,” according to Global X research. “Recently emerging conflicts in regions like the Middle East, Ukraine, and the India-Pakistan border - along with China's growing tech-driven military power - further underscore the urgency to act for major military powers. This is enforcing a structural overhaul in how militaries procure, integrate, and operationalize technology.”
Amplifying the importance of the defense/technology intersection and potentially positive implications for assets such as SHLD is the dedication to this theme display by the world’s biggest defense spends, including Europe and the U.S. NATO has the Defence Innovation Accelerator for the North Atlantic (DIANA) and the U.S. has the Defense Innovation Unit (DIU) – entities designed to bolster defense with technology.
Momentum Building for SHLD
In sheer dollar terms, the U.S. will always be the defense spending leader while China takes related commitments seriously, too, but there’s no denying that Europe could be a significant catalyst for patient investors considering SHLD because the ETF allocates approximately 38% of its portfolio to European stocks.
That’s proven to be a positive after the European Union lifted defense spending by 17% in 2024 – a record annual increase. The U.K. and Germany, SHLD’s second- and third-largest country weights, respectively, are leading the European defense spending resurgence.
“We see this rearmament cycle as a multi-year catalyst and not a short-lived exercise. In our view, Europe’s defense posture remains significantly under-digitized, compounding the opportunity for integration of advanced technologies across platforms and command systems,” concludes Global X.
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