Global defense spending hit $2.63 trillion in 2025, up from $2.48 trillion in 2024, and the momentum is accelerating. NATO’s European allies and Canada increased defense spending by 20% in 2025 compared to the prior year, and by 2035, the alliance has committed to even higher investment targets. For the first time, all 31 NATO allies met the 2% of GDP defense spending commitment in 2025. That structural shift flows directly into the order books of the companies held inside these three ETFs.
Global X Defense Tech ETF: The International Play With a Tech Edge
Global X Defense Tech ETF (NYSEARCA:SHLD) is the sharpest tool on this list for capturing the European rearmament wave. While U.S.-focused funds hold mostly American primes, SHLD deliberately mixes domestic giants with the companies actually receiving the new European budget allocations. Its top 10 holdings include international and domestic defense names alongside familiar U.S. contractors. That geographic spread is the point: when Germany announces a historic expansion of defense spending or South Korea accelerates its export program, SHLD’s holdings benefit in ways that a purely U.S.-focused fund cannot replicate.
The fund also tilts toward defense technology rather than just defense manufacturing. Palantir Technologies accounts for roughly 6% of the portfolio, giving SHLD exposure to AI-driven battlefield intelligence and logistics software that modern militaries are prioritizing. Smaller positions in drone and autonomous systems companies round out the technology angle. This is a fund that bets on where defense dollars are going, not just where they have historically gone.
Launched in September 2023, SHLD has grown quickly to $8.6 billion in assets, a sign of genuine investor demand. The expense ratio is 0.5%, slightly higher than its domestic peers, reflecting the costs of active curation and international exposure. Performance has been strong: SHLD is up nearly 49% over the past year and about 15% year to date. The tradeoff is currency and geopolitical complexity. Holding European and Asian defense stocks introduces foreign exchange risk and the possibility that political dynamics in those regions diverge from the investment thesis.
SPDR S&P Aerospace and Defense ETF: The Equal-Weight Advantage
SPDR S&P Aerospace and Defense ETF (NYSEARCA:XAR) earns its spot on this list through a structural design choice that separates it from most sector funds: equal weighting. Rather than concentrating assets in the three or four largest defense contractors, XAR spreads exposure across its roughly 42 holdings, so that each company starts with roughly equal weight. That means mid-tier suppliers have a return influence similar to that of the largest prime contractors. The practical effect is meaningful exposure to the mid-tier defense supply chain, which tends to grow faster during ramp-up cycles because the primes need to expand their supplier networks before they can deliver on larger contracts.
The fund’s 97% allocation to Industrials reflects a pure-play focus, and its 41 positions span the full supply chain: prime contractors, specialty materials producers, avionics suppliers, and emerging players. The 0.35% expense ratio is competitive for the category, and the fund has been running since September 2011 with $5.7 billion in assets. Over the past year, XAR has returned 69%, the strongest one-year return of the three funds, and is up nearly 15% year to date.
The tradeoff with equal weighting is volatility. Smaller, less liquid holdings can swing sharply on earnings or contract news, pulling the fund in ways that a market-cap-weighted fund would barely notice. Investors who want broad defense exposure without heavy concentration in the mega-caps will find XAR’s construction appealing, but they should expect more choppiness than ITA delivers.
iShares U.S. Aerospace and Defense ETF: The Large-Cap Anchor
iShares U.S. Aerospace and Defense ETF (NYSEARCA:ITA) is the largest and oldest fund on this list, with $13.5 billion in assets and a track record stretching back to May 2006. Its defining characteristic is concentration at the top. GE Aerospace alone accounts for nearly 19% of the portfolio, RTX accounts for 16%, and Boeing accounts for roughly another 8%. Those three positions combined represent nearly half of the fund, and for investors who believe the defense spending surge ultimately flows through the largest prime contractors with the deepest government relationships and the longest backlogs, ITA is the most direct vehicle.
The logic here is straightforward: when the Pentagon signs a multi-year contract, the leading prime contractors benefit. When the Navy expands its fleet, the major shipbuilders win. When allied nations order advanced missile systems, the top defense electronics firms collect. These are the companies with the established relationships, cleared facilities, and production capacity to absorb the surge in global military budgets. ITA’s market-cap weighting naturally tilts toward the companies most likely to win the largest contracts.
The expense ratio is 0.38%, the lowest of the three. The fund returned nearly 57% over the past year and is up about 10% year to date. The tradeoff is the Boeing exposure. Boeing has faced well-documented production and quality challenges in recent years, and at roughly 9% of the fund, a Boeing-specific setback would create a drag that XAR or SHLD investors would barely notice. ITA is also entirely U.S.-focused, which means it captures none of the European rearmament story directly.
Matching the Right Fund to Your Goals
SHLD offers genuinely differentiated exposure to the European rearmament story and the technology transformation of modern warfare, at a slightly higher cost. XAR’s equal-weight construction provides the broadest U.S. defense supply chain coverage and has driven the strongest recent returns among the three. ITA delivers the most liquid, lowest-cost, large-cap anchor to the defense theme for investors who believe the mega-primes will capture the bulk of expanded government contracts over the next several years.
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