Australians rush to buy defence investments as governments lift their military spending

Investors are rushing to buy ‘defence investments’ as surging military spending globally takes attention away from gold bullion.

A Lockheed Martin F-35 Lightining strike fighter jet of The Royal Australian Air Force. Picture: Brendan Radke

A surge in defence spending as the US withdraws military support from traditional allies has triggered big profits for investors in “defence funds”, which have even outperformed gold over the past six months.

The speed and scale of US President Donald Trump’s reset of NATO arrangements is most clearly seen in so-called defence ETFs (exchange traded funds) that provide a basket of top defence and military stocks inside a single fund.

On the ASX, specialist ETFs, such as Betashares ARMR fund, Global X DTech fund and VanEck’s DFND fund, are all up around 20 per cent year to date. At that pace they are outperforming gold, the market’s favourite bolthole in times of volatility which is up around 15 per cent.

In a clear reflection of deeply unsettled sharemarkets – and concern over the defence

capabilities of US allies – extraordinary amounts of money have been flowing into “defence” funds which have traditionally been a solid, if unspectacular, end of the market.

Globally, almost US$4bn has poured into defence ETFs funds since the start of the year, while inside Australia the sector is now topping $100m and at least $40m of that figure arriving since October last year.

Inside the Betashares ARMR, fund inflows doubled from January to February and more than tripled to $43m in March.

“What we are seeing is a serious increase in the order books of major military and defence contractors in the market as US allies have to fund new spending,” BetaShares investment strategist Tom Wickenden says.

Inside the European Union, the biggest budget increase is to be from Germany where the government plans a huge boost to defence spending to underpin EU defence in the Trump era. There are also upgrades planned inside the UK. Overall, NATO member budgets are to lift spending from about 2 per cent of GDP to 3 per cent of GDP. .

Earlier this week, Australia’s Coalition leader, Peter Dutton, was reported to be planning a pre-election announcement of lifting Australia’s current spending on defence from 2.3 to 2.5 per cent of GDP.

The swing to investing in military and defence contractors spending is a complete turnaround from recent trends whereby one of the hottest “themes” in the investment market had been ESG – environmental, social and governance-linked investing.

VanEck head of investments and capital markets Russel Chesler says: “For a long time spending on defence has been stable and most investors have a pretty low exposure of the area.”

Wickenden says that “whatever the outcome of certain situations, such as Ukraine, right now it is clear that military budgets – especially in Europe – are going to have to increase and that means the order books of these companies are going to expand.”

With market participants always looking to future earnings, the ASX saw a selection of listings from ETFs specialising in defence in the second half of 2024.

Australian investing in defence funds is still limited compared with overseas. The world’s biggest defence fund, the two-decade old IShares ITA Aerospace and Defence Fund, is now at $US6.3bn.

Inside defence ETFs or other listed funds there is some divergence over what constitutes defence stocks, but typically defence contractors such as Lockheed and Northrop Grumann will feature, along with Germany’s RhineMetall and tech stock Palantir. Funds differ over whether to include the large aerospace companies, Airbus and Boeing.

Even before Trump’s move to make US allies spend more on defence, global defence spending hit an estimated US2.5 trillion up from $2.2 trillion a year earlier.

Originally published as Australians rush to buy defence investments as governments lift their military spending