Most investors who track the market start and end the year comparing every result to two yardsticks, the SPDR S&P 500 ETF Trust (NYSE:SPY) and the Invesco QQQ Trust (NASDAQ:QQQ). One captures the heartbeat of corporate America, the other the pulse of its most inventive companies, and together they form the benchmark almost every fund is measured against.
However, 2025 has already delivered a twist that even seasoned watchers missed. The broader market clawed its way back from a spring tariff scare and tech giants rebounded from an early slump, but certain themes have been driving the recovery and have leapfrogged most other asset classes.
If you look into ETFs that focus on these winning themes, the outperformance becomes massive.
Why Global X Defense Tech ETF (SHLD) is flying past the benchmarks
Washington’s defense appropriation is now on track to top $1 trillion years ahead of schedule. At the start of the year, it looked like things would go wrong with the defense industry as the administration started talking about defense cuts to re-route money towards immigration issues.
In less than a month after that, the tone completely shifted, with President Donald Trump supporting a $1 trillion defense budget. And not only that, he continued aggressively pushing European allies to bump up their defense budget. This time, it wasn’t the “2% of GDP” commitment that he struggled to get countries to comply with during his first term. Instead, NATO agreed to stretch the target to 5% of GDP.
Plus, countries had already been increasing their defense budgets due to the wars in 2022 and 2023, with the Ukraine one turning into what looks like a never-ending conflict.
All of this has translated into an 82.73% year-to-date gain for the Global X Defense Tech ETF (NYSEARCA:SHLD). This is a 420% outperformance over the QQQ’s 19.67% YTD gain.
Here’s what’s inside the Global X Defense Tech ETF (SHLD)
The SHLD ETF seeks to replicate the price and yield performance of the Global X Defense Tech Index and invests at least 80% of its net assets in securities that comprise this index.
It targets advanced military hardware and software companies, especially those that manage cybersecurity systems, use AI, and are considered “big data”. Notably, SHLD excludes aerospace and commercial aviation companies. It’s sharply focused on defense and military applications only.
And this has paid off big so far this year.
The biggest holding of the ETF is Palantir (NASDAQ:PLTR) at 9.09%, followed by RTX Corp (NYSE:RTX), and Rheinmetall at 8.42% and 7.2%, respectively.
The rest of the holdings constitute a mix of North American and European defense companies, almost all of which have been posting stellar gains.
SHLD has a reasonable expense ratio of 0.50%, or $50 per $10,000.
Can SHLD keep outperforming?
SHLD is unlikely to get you triple-digit gains next year, but the tailwind is still on its back. There’s a new wave of militarization and competition between countries to modernize and deeply integrate AI and software with their hardware. Europe is spending significantly more and should continue increasing spending as countries attempt to meet the new 5% GDP target.
On top of that, high-tech defense companies are more shielded from tariffs, and interest rate cuts also help them. Their revenues are coming mostly from recurring and expanding government contracts, so they’re also more cushioned from a market downturn.
Even on a flat budget, the software/AI slice can grow in the high-teens through 2028. SHLD’s revenue proxy should therefore expand 12-15% year-over-year in that period. The earnings growth should land around 15-25%, and if Wall Street holds up the premium, I’d expect the ETF to grow with the earnings.
I’d expect SHLD to keep outperforming the SPY and the QQQ too. Still, if the broader market were to contract, SHLD will likely pull back more than QQQ.
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