NATO Summit 2026: key takeaways for investors

Tom Bailey:

Hello everyone, and thank you for joining today.

Today’s webinar will discuss the recent NATO Summit in Ankara, Turkey, which is just drawing to a close. Each year, NATO members meet to discuss the future direction of the alliance, and given the importance of defence investment themes, the summit is closely watched by investors.

At HANetf, we have a range of defence ETFs, but the summit also provides insight into how the transatlantic alliance is evolving and what future defence spending could look like.

While this was not the most eventful NATO Summit we have seen in recent years, there were still important developments and themes to discuss, particularly around defence investment.

I am pleased to be joined today by Andre Madrid, Vice President and Aerospace & Defence Analyst at BTIG. We will discuss the outcomes of the NATO Summit and place them into the broader context of defence investment, including European defence spending and developments in the US defence market.

Before we begin, please remember this webinar is for professional investors only. We also want to make this as interactive as possible, so please submit any questions through the question box.

I should also clarify that HANetf’s defence ETFs are not connected with BTIG. We are simply joining together for this discussion.

Andre, could you briefly introduce yourself?

Andre Madrid:

Thanks, Tom, for having me.

I lead aerospace and defence coverage at BTIG, focusing primarily on publicly traded equities within the aerospace and defence sector.

My coverage has a particular focus on defence technology companies, especially smaller and mid-cap companies below approximately $10 billion in market capitalisation.

I have been covering the space for around five years, which has been a particularly eventful period for the defence industry. I am excited to discuss some of the themes addressed at the NATO Summit.

Tom Bailey:

Trump has repeatedly criticised European NATO members for not spending enough on defence. Last year, we saw the Hague commitment, where NATO members agreed to increase spending towards 5% of GDP by 2035.

How would you assess the progress NATO has made, particularly over the last year?

Andre Madrid:

I think Trump’s criticism has become a recurring talking point, but the situation has changed significantly.

There may have been more justification for that argument between 2014 and 2021, after NATO’s initial commitment to spend 2% of GDP on defence. During that period, defence spending was increasing, but perhaps not quickly enough and many countries were not meeting the target.

Since 2022, however, the picture has changed considerably. NATO members have been increasing spending in response to the changing security environment and the need to improve capabilities.

Since 2022, defence spending across NATO allies has grown by around 50%. Over the past two years, NATO members excluding the US have seen close to 20% growth in both 2024 and 2025, with further double-digit growth expected.

The question is perhaps less about whether countries are increasing spending and more about whether they are moving quickly enough.

Progress remains uneven across Europe. Some countries, particularly those closer to Russia geographically, have moved faster. The Baltic states and Poland, for example, have been among the strongest supporters of higher defence spending.

However, as you move further west across Europe, there has historically been less urgency due to a different perception of the threat environment.

When the 5% commitment was announced, one of the main objections came from Spain, which expressed concerns about increasing defence spending while protecting domestic social programmes.

That highlights the differences between NATO members and the varying priorities across countries.

Tom Bailey:

One of the first newsworthy items from the NATO Summit was the announcement of major defence contracts.

One interpretation is that these announcements help demonstrate that NATO members are turning commitments into tangible procurement activity, rather than simply discussing longer-term spending targets.

Andre, could you discuss some of the key contracts announced at the summit?

Andre Madrid:

One that stands out is a procurement contract for maritime intelligence, surveillance and reconnaissance capabilities involving Northrop Grumman’s Triton drone.

The Triton is a high-altitude, long-endurance unmanned aircraft designed primarily for intelligence, surveillance and reconnaissance missions.

It is a highly capable platform, and while it has sometimes been overshadowed by other US defence programmes, it represents an area where European NATO members currently do not have an equivalent capability.

The broader significance is that NATO members are moving beyond commitments and actually signing contracts, placing orders and expanding their defence capabilities.

Tom Bailey:

A major theme since 2025 has been European countries increasing domestic or European defence procurement.

At the same time, President Trump has argued that US companies will capture a significant portion of future defence spending.

How do you assess the balance between European defence independence and continued reliance on US suppliers?

Andre Madrid:

As with many things, the reality is somewhere in the middle.

It is unlikely that NATO Europe will become entirely independent from the United States, but Europe is clearly trying to increase its own capabilities and become more self-sufficient.

Several initiatives launched around the summit reflect this ambition, including efforts to make it easier for companies to work with NATO and expand manufacturing capacity through greater commercial involvement.

At the European Union level, there has also been a significant push towards increasing domestic procurement.

Looking back at the early years following Russia’s invasion of Ukraine, a significant proportion of European defence purchases came from suppliers outside Europe, including the United States.

Europe has now set ambitions to increase the proportion of defence equipment sourced domestically, with targets to reach approximately half of procurement from domestic suppliers by 2030 and around two-thirds by 2035.

These commitments show a clear desire to strengthen Europe’s defence industrial base.

However, there are areas where Europe will continue to rely on international partners.

A good example is the Future Combat Air System (FCAS) programme between France and Germany. The programme has faced challenges due to disagreements over industrial responsibilities.

For highly advanced capabilities, such as next-generation fighter aircraft, Europe may continue to need cooperation with international partners, including the United States.

At the same time, there are areas where Europe has demonstrated it can develop independent capabilities, particularly in areas such as drones.

Drone production in Europe has expanded significantly since the war in Ukraine began, demonstrating that certain areas of defence technology can be developed domestically.

Tom Bailey:

One important theme is not simply whether equipment is produced domestically or internationally, but whether production is localised.

We have seen examples such as partnerships between Rheinmetall and Lockheed Martin to produce missiles in Germany, discussions around licensed production of Patriot missiles, and localisation of South Korean defence equipment in Poland.

Does this represent a middle ground between European independence and international cooperation?

Andre Madrid:

I think these arrangements can satisfy both sides.

For US defence companies, licensing agreements allow them to participate in allied defence spending.

For European countries, they allow more production, jobs and industrial capability to remain within their own economies.

I view this as a win-win approach.

It also reflects a broader trend within the defence industry.

In 2025, many companies were signing memorandums of understanding. The next stage is likely to be more concrete agreements, including licensing arrangements and local production.

Some elements of production may remain external, but final integration or manufacturing can increasingly take place in the purchasing country.

Tom Bailey:

An audience member asked about whether future defence budgets will move away from traditional land systems towards air defence, which could affect companies more associated with land-based capabilities, such as Rheinmetall.

What is your view?

Andre Madrid:

I think there is a logical case for increased focus on air defence.

The conflict in Ukraine has demonstrated the growing importance of aerial threats, including drones, missiles and other stand-off weapons.

However, I do not think this means traditional land systems are disappearing.

The idea that tanks are obsolete has appeared repeatedly throughout history. Ultimately, if you want to capture and hold territory, you need a physical presence on the ground.

Armoured vehicles and tanks provide protection for soldiers operating on the battlefield.

The challenge is that land systems are currently behind the innovation cycle compared with some newer technologies, particularly drones.

The future is likely to involve adapting land systems rather than replacing them entirely.

Tom Bailey:

I agree. Land systems remain important because territory still has to be physically controlled.

However, these systems need to adapt to modern threats, particularly drones.

Rheinmetall provides an interesting example. Although traditionally associated with land systems, its air defence segment has become one of its faster-growing areas, particularly through counter-drone systems such as Skynex and Skyranger.

The company is attempting to become a broader multi-domain defence supplier.

Andre Madrid:

I think we are seeing an evolution across all domains of unmanned technology, including aerial, maritime and ground systems.

Ground-based unmanned vehicles have historically been slower to develop compared with aerial systems.

However, since around last year, we have seen increasing use cases for unmanned ground vehicles in Ukraine, including offensive roles and applications such as medical evacuation.

The broader objective is to reduce risk to personnel while increasing capability.

Tom Bailey:

Turning to the United States, the Trump administration has recently used additional pressure on defence companies to increase production capacity.

Could you explain what is happening?

Andre Madrid:

There has been increased pressure from the administration for defence companies to meet capability requirements.

One example is the focus on companies reinvesting capital into production capacity rather than prioritising shareholder returns.

The administration has indicated that companies with programmes that are not fully funded, delayed or unable to meet requirements could be disadvantaged when competing for future contracts.

As a result, some large defence companies have shifted more capital towards:

• Research and development
• Manufacturing capacity
• Improving operational efficiency

The argument is that defence companies ultimately rely on taxpayer-funded contracts and should continue investing in capabilities that support defence requirements.

Tom Bailey:

The proposed US defence budget has attracted significant attention, with discussion of a potential $1.5 trillion defence budget.

Could you explain how the process works and what this means in practice?

Andre Madrid:

The US defence budget process is complex and involves multiple stages.

The process begins with the military services developing their requirements through the Planning, Programming, Budgeting and Execution (PPBE) process.

These proposals are reviewed within the Department of Defense before being sent to the Office of Management and Budget within the White House.

The result is the President’s Budget Request, which outlines the administration’s priorities.

This then moves to Congress, where the House and Senate Armed Services Committees review and develop the National Defense Authorization Act (NDAA).

The NDAA authorises programmes, but it does not directly provide funding.

The actual funding comes through defence appropriations legislation.

Both the NDAA and appropriations process must be completed before funds can begin flowing to defence companies.

Ideally, this happens before the start of the fiscal year on 1 October.

If this does not happen, Congress may pass a continuing resolution, which maintains existing funding levels but can restrict the launch of new programmes.

Tom Bailey:

This means the budget process itself provides an important signal to the defence industry about where future spending priorities may be.

Andre Madrid:

Exactly.

The budget request provides industry with insight into where future demand may develop.

It is not only about the immediate year’s spending but also the longer-term outlook through future years’ defence programmes.

Tom Bailey:

You mentioned that the defence budget provides a signal of where the administration wants to focus future investment.

Could you discuss some of the key areas that stand out in the latest US defence spending proposals?

Andre Madrid:

The biggest area of focus in the fiscal year 2027 defence budget appears to be defence-wide research, development, testing and evaluation (RDT&E).

One notable area is autonomous warfare and counter-autonomous systems.

The Defence Autonomous Warfare Group, which continues some of the work previously associated with the Pentagon’s Replicator initiative, is focused on rapidly developing and deploying autonomous systems and counter-autonomous capabilities.

The programme is expected to receive significant funding within the budget request, although there is some uncertainty around elements that depend on reconciliation funding.

Overall, unmanned systems and counter-unmanned systems are among the areas seeing some of the strongest growth.

Tom Bailey:

You mentioned earlier that some smaller defence technology companies have benefited from this shift in priorities.

In HANetf’s upcoming US defence ETF, we are including exposure to larger defence companies but also seeking greater exposure to smaller and mid-cap defence technology names.

Is this shift also part of a broader effort to diversify the defence supply chain?

Andre Madrid:

Yes, and it reflects a major change in the defence industrial base.

Following the end of the Cold War, the defence industry went through significant consolidation.

A key moment often referenced was the so-called “Last Supper” meeting in the 1990s, when then-Secretary of Defense William Perry encouraged defence companies to consolidate as defence budgets declined.

The industry moved from having many contractors competing across different areas to a much smaller group of large prime contractors.

Over time, the number of major defence suppliers reduced significantly.

While consolidation made sense during a period of lower defence spending, it created challenges as global security requirements increased.

During recent conflicts, the industry faced issues with production capacity, supply chain constraints and the ability of a small number of suppliers to meet demand.

The concern became that governments had limited alternatives because there were only one or two major suppliers for certain critical capabilities.

This environment created opportunities for new defence technology companies.

Many of these companies raised private capital and focused on developing solutions more quickly, particularly in areas such as autonomous systems, software and advanced technologies.

We are now seeing a new generation of defence companies emerge in a way that has not been seen for decades.

Tom Bailey:

Bringing this back to the NATO Summit, one announcement was that NATO allies plan to spend approximately $40 billion on counter-drone systems over the coming years.

This links to the wider discussion around how defence companies adapt to a battlefield increasingly shaped by drones.

How do you see the role of traditional defence companies and specialist drone companies developing?

Andre Madrid:

Drone technology has developed across a wide spectrum.

On one side, there are highly advanced systems, such as autonomous combat aircraft programmes being developed by the United States.

On the other side, there are lower-cost, more disposable drones, including smaller Group 1 through Group 3 unmanned systems.

For context, drone groups are generally classified by factors such as size, weight and capability.

• Group 1 systems are typically smaller drones with limited payload capacity.
• Higher groups represent larger and more capable unmanned aircraft.
• Group 5 systems approach the scale and capability of traditional aircraft, although they remain unmanned.

Different companies are positioned across this spectrum.

Some companies specialise in smaller, lower-cost systems, while larger defence primes are focused on more advanced platforms, including autonomous aircraft and systems designed to operate alongside manned aircraft.

The future battlefield is likely to require both approaches.

Tom Bailey:

Counter-drone capabilities appear to be one of the major areas where demand is increasing.

We are seeing European companies such as Rheinmetall, Kongsberg and others developing solutions, while companies globally are expanding their capabilities.

Andre Madrid:

It is not surprising that counter-drone technology has become such a priority.

The industry moved quickly to develop autonomous systems, but this created a new challenge: how do you defend against those systems?

Over the past year, there has been increasing focus on counter-unmanned aerial systems.

However, there is no single solution that can address every threat.

An effective counter-drone ecosystem requires a layered approach, including:

• Laser systems for precision engagements at longer ranges.
• High-powered microwave systems and radio frequency jamming technologies for broader area effects.
• Kinetic solutions for situations where physical interception is required.

The most effective approach will likely combine multiple technologies rather than relying on one system.

Tom Bailey:

Recent conflicts have highlighted the cost imbalance between low-cost drones and expensive interception systems.

For example, using a high-cost missile against a relatively inexpensive drone creates an economic challenge.

Andre Madrid:

Exactly.

For significant threats, advanced missile systems remain essential.

However, for lower-cost drone threats, using expensive interceptors can become economically inefficient.

This creates demand for alternative solutions where the cost per engagement is significantly lower, including directed energy systems such as lasers and high-powered microwave technologies.

The objective is to create a more sustainable and scalable approach to countering large numbers of unmanned systems.

Tom Bailey:

The conflict involving Iran also highlighted the importance of missile defence systems, including Patriot missiles.

At the same time, there is increasing recognition that different threats require different solutions.

Andre Madrid:

That is an important point.

It is not an either-or situation.

Patriot systems provide a capability against more advanced threats, including ballistic missiles, and remain an important part of air defence.

However, they are not designed to address every type of threat, particularly large numbers of lower-cost drones.

Future air defence will likely involve layered systems combining:

• Long-range missile defence.
• Short-range air defence.
• Counter-drone technologies.

Different regions are experiencing different capability gaps, which is driving demand for a broader range of solutions.

Tom Bailey:

The NATO Summit was held in Turkey, and there was discussion around potentially easing restrictions affecting Turkish defence equipment.

Turkey is sometimes overlooked in discussions about NATO defence spending. Could you explain its role?

Andre Madrid:

Turkey is often overlooked, despite having one of the more established defence industrial bases among NATO members.

The relationship between Turkey and the United States became more complicated after Turkey’s decision to purchase Russia’s S-400 air defence system.

At the time, Turkey had been involved in the F-35 programme as both a supplier and potential customer.

The United States expressed concerns that operating the Russian system could create risks around sensitive F-35 technology, which ultimately resulted in Turkey being removed from the programme.

However, Turkey remains an important defence producer.

It spends around $25 billion annually on defence and has developed significant domestic capabilities.

One of the most notable aspects of Turkey’s defence industry is the level of domestic production.

Approximately 80% of defence equipment it purchases is produced domestically, which represents significant progress compared with previous decades.

Andre Madrid:

Turkey has developed capabilities across multiple areas, including:

• Naval systems.
• Land systems.
• Aerospace.
• Space technologies.
• Unmanned systems.

Its drone industry has been particularly notable.

Turkey has become one of the more recognised exporters of armed drone technology, with systems gaining attention through their use in recent conflicts.

While Turkey may not compete with the most advanced defence powers in every category, it has demonstrated the ability to develop effective and commercially successful defence solutions.

Tom Bailey:

Thank you, Andre.

To summarise, today we have discussed the NATO Summit, European defence investment, the changing defence industrial base, autonomous systems, counter-drone technologies and the continued importance of defence innovation.

At HANetf, we offer several defence-related ETFs, including exposure to global defence companies, European defence, Indo-Pacific defence and drone technologies.

We would like to reiterate that BTIG is not involved with HANetf’s ETFs. This discussion has been purely educational.

Thank you again, Andre, and thank you to everyone who joined.