Future of Defence Report | May 2026

Defence ETF, European Defence ETF, and Indo-Pacific Defence ETF – Key Takeaways

Global Military Spending Increases as European and Asian Expenditures Surge – The annual Stockholm International Peace Research Institute (SIPRI) report was released on 27 April 2026.  SIPRI published that global military expenditures reached $2,887 billion in 2025, representing an increase of +2.9% over 2024 levels.  While US military spending declined, absent new military aid for Ukraine, expenditures rose +14% in Europe and +8.1% in Asia and Oceania, as countries in those regions strive to become more autonomous. The US did increase its investments in both nuclear and conventional military capabilities and the 2025 decline will be short-lived. The US Congress has approved over $1 trillion in defence spending for 2026, a substantial increase from 2025.  In addition, this figure could rise to $1.5 trillion in 2027 if the administration’s latest budget proposal is accepted. Outside the US, total spending grew by +9.2% in 2025. The top three military spenders – the US, Russia, and China- spent a combined total of $1,480 billion in 2025, or 51% of global spending. Given the range of current crises including the war with Iran, as well as many states’ long-term military spending targets, SIPRI projects the pace of growth will likely continue through 2026 and beyond.[1]

Sharp Rise in European Spending Amid War and Revised NATO 5% Target – The largest contributor to the global increase in military spending in 2025 was Europe, rising +14% to $864 billion. Spending by Russia and Ukraine continued to grow in the fourth year of the war in Ukraine, and ongoing rearmament efforts by European NATO members resulted in the sharpest annual growth in defence spending in Central and Western Europe since the end of the Cold War. Russia’s military spending grew by +5.9% in 2025 to $190 billion, equating to 7.5% of GDP. Ukraine, the seventh largest spender in 2025, increased their spending by +20% to $84.1 billion, or 40% of GDP. Military spending by European NATO members rose faster than at any time since 1953, reflecting its ongoing pursuit of European self-reliance alongside increasing pressure from the US to increase its burden share within the alliance. Europe’s 29 NATO members spent a combined total of $559 billion last year, with 22 above the 2% of GDP target based on SIPRI’s methodology.  Germany was the largest military spender, increasing annual spend by 24% to $114 billion. Germany’s military budget exceeded the 2% of GDP threshold for the first time since 1990, hitting 2.3% of GDP.  Spain increased its military budget by +50% to $40.2 billion, bringing its military burden above the 2% of GDP level for the first time since 1994. In June of 2025, NATO also increased its percent of GDP target to 5%, which now includes other defence and security-related expenditures such as cyber security, defence technology, and supporting infrastructure.[2]

European Defence Stocks Cool as Investors Reevaluate Technology – European defence stocks have seen profit taking as high valuations have collided with growing questions about the future of modern warfare.  The Iran conflict has highlighted the effectiveness of low-cost drones over expensive missiles and military aircraft. Whereas typically defence stocks rally during a war, the Iran conflict has proven to be different.  First off, NATO allies have left the US to wage the conflict on its own.  European defence stocks were also huge winners thanks to demand created by the Russia-Ukraine war.  The rally was fuelled by pledges from European governments to boost defence spending and Germany loosening fiscal rules last year to turbo-charge its rearmament drive. But order intake has been slower than some investors expected, with contracts delayed or phased-in due to fiscal pressures.  Premium valuations have also come into play. At the onset of ‌the Iran war, Europe’s ⁠aerospace and defence names were trading at around 29X earnings forecasts. In addition, the Iran conflict has underscored the high costs associated with modern warfare, with Gulf states rapid-firing hundreds of U.S.-made Patriot anti-missile interceptors priced at about $4 million each. The war has renewed focus on cheaper military solutions like drones that have also gained prominence in the Ukraine ⁠war. There is a shift in the ‘future of warfare’ thinking since the outbreak of the Iran conflict, with the growing role of new technologies like much cheaper drones calling into question future demand for expensive legacy platforms. Despite this short-term re-evaluation, the longer-term growth picture remains intact, driven by a need for countries around the world to rebuild and update their defence capabilities after decades of underinvestment.[3]

Indo-Pacific Defence News

Asia and Oceania See Fastest Rise in Spending Since 2009 – According to SIPRI, military expenditures in Asia and Oceania totalled $681 billion in 2025, an increase of +8.1% and the highest level since 2009. China, the world’s second largest military spender, increased its military spending by +7.4% to $336 billion. This was the 31st consecutive year-on-year increase as China continued its military modernisation drive. Japan’s military expenditure rose by +9.7% to reach $62.2 billion in 2025, equivalent to 1.4% of GDP—the highest share since 1958.  Taiwan’s military spending rose by +14% to $18.2 billion (2.1% of GDP), its largest annual increase since 1988.  US allies in the region such as Australia, Japan and the Philippines are spending more on their militaries, not only in response to long-standing regional tensions but also due to growing uncertainty over the level of future US support. As is the case in Europe, US allies in Asia and Oceania are under extreme pressure from the US to spend more on their own military defence. India, the fifth biggest military spender in the world in 2025, increased its military spending by +8.9% to $92.1 billion. Countries like India, Japan, and South Korea also aspire to be growing exporters of military equipment.[4]

Upside for Asia Defence Stocks on Arms Buildup – Asian defence stocks are attracting renewed investor interest following a global arms buildup sparked by the Iran war. European governments are set to boost defence budgets, while Middle Eastern nations will also likely increase military spending. Asian exporters are well placed to meet demand thanks to cost advantages, flexible supply chains and faster delivery. Three Asian stocks — South Korea’s Hanwha Systems Co. and LIG Defence & Aerospace Co., along with Japan’s Astroscale Holdings Inc. rank among the top five defence performers worldwide this year. The rally could be the start of a longer expansion, as Middle East tensions highlight the growing indispensability of defence. Asian defence producers benefit from the region’s deep-rooted manufacturing strength. They have shifted from being primarily buyers of weapons to developing expertise, innovating, and embedding itself in US and European supply chains, according to T.J. Thornton, head of research marketing at Bank of America Securities. “Many think of Asia as a region that buys defence systems. For decades, this was the case, but Asia is rapidly becoming something very different.” Korean firms stand out for combining competitive pricing, advanced technology, and some of the fastest delivery timelines worldwide. Indian defence stocks are also emerging as a bright spot in a market that has trailed regional peers since mid-2025, lifted by government support for domestic production and local procurement. The Indian defence-sector index has gained about +14% this year.[5]

Company News – Earnings Analysis (NATO)

NATO May

Company News – Earnings Analysis (NATE)

NATE May

Company News – Earnings Analysis (ARMY)

ARMY May

Company News – Earnings Analysis (QUAD)

QUAD May

Source: VettaFi as of 21.04.2026. For illustrative purposes only.

NATO 28-04-2026

NATO May table

NATE 28-04-2026

NATE May table

ARMY 28-04-2026

ARMY May table

QUAD 28-04-2026

QUAD May table

Macro Outlook – US Defence Aspirations Reset Expectations

Europe’s rearmament efforts helped drive global defence spending to a record $2.9 trillion in 2025 despite a temporary pullback in US spend.  While the US kept its top spending spot at $954 billion, this figure represented a +7.5% year on year decline after no new support for Ukraine was approved.  However, U.S. spending is expected to top $1 trillion in 2026 and has been proposed at $1.5 trillion for 2027.  Another year of wars, global instability, and the need for defence modernisation pushed global military spending as a percent of GDP to 2.5%, its highest level since 2009.  Europe’s 14% increase to $864 billion was a main driver, with Germany and Spain seeing the biggest percentage increases.  In June 2025, NATO members, except Spain, had outlined a long-term goal to raise defence spending to 5% of GDP over the next decade providing another catalyst for growth. The Asia-Pacific region was another area of accelerated spending, rising +8.1% to $681 billion, the most since 2009.  U.S. allies in Asia and Oceania such as Australia, Japan and the Philippines are spending more on defence, not only due to long-standing regional tensions but also due to growing uncertainty over ongoing U.S. support. Taiwan’s military spending rose +14% to $18.2 billion, equivalent to 2.1% of GDP, marking its largest annual increase since at least 1988. While the spending boom lifted European names in 2025, amid shifting demand and valuation concerns, Asian defence names have been the biggest winners year to date in support of their domestic defence growth but benefiting as formidable exporters. In April, Japan eased their restrictions on weapons exports. The Iran war has been another wakeup call after Ukraine, of how expensive and exhaustive modern warfare can be. This realisation may influence future spending priorities for many years to come.[6] [7]

Key Charts in Focus

Defence Chart

Defence Chart 2

Source: SIPRI. Data as of April 2026. For illustrative purposes only.

Defence Chart 3

Data as of 28.04.2026. For illustrative purposes only.

Defence Chart 4

Data as of 17.04.2026. Past performance is not indicative of future performance. For illustrative purposes only.

Defence Chart 5

Data as of 20.04.2026. Past performance is not indicative of future performance. For illustrative purposes only.

Defence ETF Performance
As of 31.08.2026

NATO (Fund)NATONTR (Index)
1M3.75%3.79%
3M0.22%0.33%
6M8.85%9.09%
YTD17.60%17.95%
12M20.52%21.06%
3Y173.73%177.90%
Since Inception (03/07/2023)178.88%183.26%

European Defence ETF Performance
As of 31.08.2026

ARMY (Fund)ARMYSN (Index)
1M0.61%0.65%
3M1.22%1.29%
6M-3.75%-3.63%
YTD11.25%11.54%
12M10.66%10.95%
3Y-223.75%
Since Inception (07/04/2025)43.75%48.80%


Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31.08.2026

Performance before inception is based on back-tested data. Backtesting is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such a strategy would have been. Back-tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. When you invest in ETFs your capital is at risk.

[1] https://www.sipri.org/media/press-release/2026/global-military-spending-rise-continues-european-and-asian-expenditures-surge

[2] Ibid

[3] https://www.reuters.com/business/aerospace-defense/european-defence-stocks-cool-investors-reassess-war-winners-2026-04-20/

[4] https://www.sipri.org/media/press-release/2026/global-military-spending-rise-continues-european-and-asian-expenditures-surge

[5] https://www.bloomberg.com/news/articles/2026-04-19/bofa-jupiter-see-upside-for-asia-defense-stocks-on-arms-buildup

[6] https://www.cnbc.com/2026/04/27/global-military-spending-record-2025-europe-asia-ukraine-sipri.html

[7] Source: VettaFi

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