How Defense Tech Investors Are Using SHLD to Capture 21st Century Warfare Spending

The U.S. military’s recent Operation Absolute Resolve put F-35s, F-22s, and stealth drones into live combat, and every platform traced back to a company inside Global X Defense Tech ETF (NYSEARCA:SHLD). Modern warfare runs on software, sensors, and precision hardware, and SHLD is built to capture the companies building all three.

Concentrated Defense Exposure by Design

Most broad-market ETFs bury defense inside industrials allocations. SHLD gives investors concentrated, intentional access to defense technology without picking individual contractors. The fund tracks the Global X Defense Tech Index, seeking companies that build cybersecurity systems, apply artificial intelligence to military operations, and manufacture advanced hardware including robotics, drones, and aircraft.

The return engine is government procurement budgets. Global defense spending rose 9.4% year-over-year to $2.7 trillion in 2024, the fastest annual increase since the Cold War. That spending flows directly to SHLD’s holdings. Unlike consumer-facing businesses, defense revenues are driven by strategic military priorities rather than economic cycles, giving the underlying cash flows a different character than most equity portfolios.

A Portfolio Built Around Five Dominant Positions

SHLD holds 49 companies across U.S. and international contractors, but the fund is not evenly distributed. The top five positions account for roughly 36% of net assets. Lockheed Martin sits at 9.22%, followed by RTX at 8.03%, General Dynamics at 7.08%, Rheinmetall at 6.30%, and Palantir at 6.08%.

The international diversification is a genuine differentiator. European names including Rheinmetall, BAE Systems at 5.01%, Hanwha Aerospace at 4.43%, and Leonardo at 4.41% give SHLD exposure to NATO allies rapidly expanding their own defense budgets, a dynamic pure U.S.-focused defense funds miss entirely.

Performance Backed by Real Fundamentals

SHLD is up about 15% year-to-date and has risen roughly 72% over the past year. Since inception in September 2023, the fund has returned over 206% from its starting price. The underlying holdings support that performance with real fundamentals.

Lockheed Martin posted a record $194 billion backlog and guided for $77.5 to $80 billion in 2026 revenue. RTX carries a $268 billion backlog and generated $7.94 billion in free cash flow in 2025, up 75% year-over-year. Northrop Grumman’s record $95.7 billion backlog and 1.10 book-to-bill ratio suggest demand is accelerating. L3Harris recorded record orders of $27.5 billion with a 1.3x book-to-bill in 2025.

Palantir is the fund’s most polarizing holding. Its Q4 2025 U.S. government revenue grew 66% year-over-year to $570 million, and the company guided for $7.18 to $7.20 billion in 2026 revenue, implying 61% growth. It trades at a P/E ratio near 239x, and a Reddit r/stocks thread titled “Getting out of Palantir” drew over 1,800 upvotes in late March, reflecting genuine retail valuation anxiety.

Three Tradeoffs Worth Understanding

1. Concentration risk in a few names: The top five holdings represent more than a third of the portfolio. A single bad earnings quarter from Lockheed, as happened in Q2 2025 when a $1.6 billion in program charges sent EPS to $1.46 against a $6.57 estimate, can drag the entire fund meaningfully. Diversification within SHLD is real but not deep.
2. Palantir’s valuation creates asymmetric risk: At roughly 6% of the fund and trading at a triple-digit earnings multiple, Palantir can amplify both upside and downside. It is down nearly 17% year-to-date even as the broader fund has climbed, illustrating how one high-multiple holding can act as a drag on an otherwise strong portfolio.
3. Domestic budget and political risk: Government shutdown risk and shifting DoD budget priorities can stall contract awards across the entire portfolio simultaneously. Fixed-price contract exposure, like Northrop’s $477 million B-21 LRIP loss provision, demonstrates that even winning programs can generate near-term earnings pain. Prediction markets currently assign only a 7% probability to a direct NATO-Russia military clash by June 2026, suggesting the geopolitical tailwind is structural rather than crisis-driven.

SHLD offers concentrated exposure to the defense technology buildout, designed for investors who want intentional access to this sector rather than incidental exposure through a broad industrials fund. Anyone treating it as a diversified industrials fund should understand that its returns will rise and fall with a handful of large contractors and one high-growth AI company trading at a demanding valuation.