The world is in turmoil and, in the investment universe people are looking for cover. Gold has made some big gains again so far this year, with the Invesco Physical Gold ETC (SGLD) up by more than 8 per cent year to date, as at 3 March. Bond yields have fallen this year, too, in a sign that investors are scrambling for defensive assets.
‘Defensive’ is a good word for those wondering which shares can make gains in a time of uncertainty, in more ways than one. Donald Trump’s public spat with Ukraine’s Volodymyr Zelenskyy has cast doubt on the prospects of a peace deal in the Russia-Ukraine war. That, combined with broader political tensions related to the president’s actions has turbocharged returns from defence stocks, especially in Europe. Take Rheinmetall (DE:RHM), which has made gains of around 90 per cent so far in 2025, as one extreme example. Closer to home, BAE Systems (BA.) has made gains of around 35 per cent.
Some investors will have understandable qualms about holding companies in this sector, though the Ukrainian situation might persuade them that there is a higher purpose here. Those who do want to hold defence shares may wish to look at the multiple thematic exchange-traded funds (ETF) available, either to hold directly or to simply provide some inspiration.
Unsurprisingly those ETFs have delivered some huge gains so far this year. The Global X Defence Tech ETF (ARMG) stands out, having made a total return of 17 per cent (as at 3 March). It tracks the Mirae Asset Defence Tech index, has 37 holdings, and has substantial exposure to the companies we have already discussed. There’s a 12.2 per cent allocation to Rheinmetall, roughly 9 per cent apiece in Palantir (US:PLTR) and BAE Systems and 8 per cent in RTX Corporation (US:RTX).
As its name suggests, there is a technology element to the portfolio, with companies involved in cyber security and the use of artificial intelligence included among its holdings. Some 85 per cent of the fund is in industrials, with the balance in tech. In terms of geography, it’s fairly US-centric with an allocation of around 60 per cent to that market. Yet, despite the ETF’s performance, US defence stocks have lagged their peers this year. Take Lockheed Martin (US:LMT), which has actually seen its shares slip back in 2025.
The Global X fund is not the only name with strong returns: the Future of Defence ETF (NATO), focused on the theme of higher defence spending from European Nato members, has returned around 15 per cent. It has 60 holdings and smaller position sizes than ARMG, though top holding Rheinmetall accounts for 7.2 per cent of the portfolio. The NATO ETF has a similar weighting to the US, though it has less in industrials than its rival.
It’s worth noting that the Invesco Defence Innovation ETF (DFNX) is pretty flat this year, but those ETFs focused on cyber security have performed well, if less astoundingly so than the defence funds.
We are yet to see whether more generalist funds embrace the defence sector, be it standard equity funds or even those ESG portfolios that might now spot a cause to be backed. But investors wanting to play defence have plenty of options already. Whether stocks in this sector have more room to run is another discussion, however.
