Defence ETF Report | February 2026

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

Europe $1 Trillion Race in Defence – Facing Russian aggression and a split with the U.S. Europe aims to churn-out the weapons it needs for defence autonomy. The U.S. increasingly is focused on Asia and now, more recently, on Latin America. While Europe’s once-anaemic defence industry is churning out drones, tanks, ammunition and other weaponry at its fastest pace in decades, it still has some way to go. According to the International Institute for Strategic Studies, the cost of replacing current U.S. military equipment and personnel in Europe would be around $1 trillion. And many holes remain in the region’s manufacturing capability, including in the area of stealth fighters, long-range missiles and satellite intelligence. At Davos, Finland’s President pointed out that his country’s fleet of fighter jets depend on U.S. parts and software to fly. While Europe has accelerated its production capacity, it must overcome industry fragmentation which limits its ability to scale relative to U.S. peers funded by the world’s largest military budget.[1]

Europeanised NATO Absent the U.S. – Early in 2026, 11 NATO allies are conducting Exercise Steadfast Dart across Central Europe with 10,000 troops, notably without U.S. participation.  European allies seek to demonstrate their ability to operate independently amid growing uncertainty over Washington’s long-term commitment to the alliance. While the exercise was conceived well before recent tensions created by Trump’s visit to Davos, threatened annexation of Greenland, criticism of NATO and British troops during the war in Afghanistan, and takeover of Venezuela, the operation is still being looked upon as a test of how well European allies can function together without the U.S.  “This exercise could well give an impression of the future of a Europeanised NATO,” said Lukas Mengelkamp, an analyst at the Institute for Peace Research and Security Policy at the University of Hamburg.[2]

Rutte’s 10% of GDP Comment – NATO Secretary-General Mark Rutte warned European nations that they would need to spend approximately 10% of their GDP on defence to maintain their current level of security if they were to operate without U.S. military support.  Rutte stated that relying solely on European capabilities, without the U.S. “nuclear umbrella,” would require a massive, immediate, and unsustainable increase in military spending.  Rutte criticised the notion of European “strategic autonomy” without the U.S., telling advocates to “keep on dreaming” if they believe it is possible at lower spending levels.[3]

Private Credit Joins Race to Rebuild European Defence – A string of private credit deals suggests that investors are getting behind Europe’s defence build-up, with the credit arm of Carlyle Group Inc. recently financing acquisitions of defence-related companies. Private credit investors are demonstrating a greater willingness to fund the defence space and along with other large institutional investors, who are taking a more practical approach related to ESG concerns. Private capital is looking for a chance to deploy cash to market segments such as drones, aerospace-related technology and weaponry. The credit arm of Carlyle Group Inc. financed Bridgepoint Group’s acquisition of Comrod, a Norwegian maker of masts used for military communication and that followed a debt package Carlyle arranged for France’s Mecachrome, which provides components for Emmanuel Macron’s vaunted Rafale fighter jets.  The rising need for investment — and interest by direct lenders — has already manifested itself in the holdings of lenders with publicly listed business development companies, or BDCs. BDC exposure to the defence industry landed at approximately $7.2 billion as of Sept. 30, up from $1.5 billion at the end of 2024, according to PitchBook LCD.[4]

Kongsberg Secures Large Defence Contracts – Norwegian defence company Kongsberg has secured a €140 million contract from Germany and Sweden for remote weapon stations, as part of the Collaborative All-Terrain Vehicles (CAVS) 6×6 program. This lucrative contract demonstrates the growing trust in Kongsberg’s advanced military technology and reflects strengthening defence relationships and cooperation between Norway, Germany, and Sweden to counter evolving global security challenges.[5]

Indo-Pac Defence News

US Policy Focus Shifting to Indo-Pac Region to Counter China Threat – The latest U.S. defence policy signals that Congress expects deeper cooperation with America’s friends and allies across the Indo-Pacific to counter an increasingly assertive China, according to defence experts. The 2026 National Defence Authorisation Act, which funds the defence Department at $901 billion, includes a five-year Strategy to Strengthen Multilateral Defence in the Indo-Pacific.  Amid China’s escalating aggressive and coercive tactics, the U.S. aims to bolster security cooperation with Indo-Pac allies and partners to enhance multilateral deterrence. The strategy identifies Australia, Japan, the Philippines and South Korea as key allies for expanding regional access, including by “enhancing interoperability, prepositioning munitions stockpiles” and increasing use of shared facilities.[6]

Russian Arms Makers Absent from Singapore Air ShowRussian defence companies have vanished from major airshows in Asia, which experts say reflects the country’s shrinking and increasingly concentrated arms-export industry.  This was the second year in a row that Russian manufacturers were absent from the roster of show attendees at the Singapore Airshow, the largest aerospace exhibition in Asia. Russia’s absence from these key airshows reflects the shrinking, regionalised and increased concentration of its arms-export profile, exacerbated by the war in Ukraine. Russia’s arms exports to Asian customers peaked from around 2005 to 2011 when it won major contracts with India and China. According to the Stockholm International Peace Research Institute, in 2025, China accounted for 60% of all Russian deliveries of major weapons. Russian arms makers have focused more on courting potential Middle East customers in the Gulf region.[7]

Drone Makers Seeing Asia-Pacific Defence Contracts – Drone manufacturer Red Cat Holdings announced a significant defence contract in the Asia-Pacific region.  The company revealed that an unnamed military partner in the region selected its Black Widow system in a competitive bidding process. This small, unmanned aerial reconnaissance system (sUAS), designed for contested environments and manufactured entirely in the US, is scheduled for delivery throughout 2026. Another drone maker, Ondas also revealed at the Singapore Airshow that its Airobotics division secured a strategic contract in the region as well with a government defence client. Ondas revealed the deal will unfold in multiple phases, with initial deliveries slated for this year and the possibility of follow-on orders as deployments grow. Specific financial details were not shared.[8][9]

India Defence Budget Jumps 18 Percent – India plans to raise its spending on new military hardware and defence modernisation by nearly 18% in the coming year, ramping up its capabilities in the face of continued tensions with Pakistan.  India has earmarked 2.2 trillion rupees or $23.9 billion USD. India had prioritised the modernisation of military hardware through domestically- produced weapons, but progress remains slower than desired. In January, India approved a plan to buy and jointly build 114 French-made Rafale fighter jets in a mutli-billion-dollar deal to plug critical gaps in air defence. India and Germany are also working on a submarine manufacturing deal worth $8 billion, the largest-ever defence agreement for India.[10]

Company News – Earnings Analysis (NATO)

Company News – Earnings Analysis (NATE)

Company News – Earnings Analysis (ARMY)

Company News – Earnings Analysis (QUAD)

 

Source: VettaFi as of 05.02.2026. For illustrative purposes only.

Product Comparisons

Source: VettaFi as of 05.02.2026. For illustrative purposes only.

NATO 27-01-2026 Rebalance

NATE 27-01-2026

ARMY 27-01-2026

QUAD 27-01-2026

Macro Outlook – US Defence Aspirations Reset Expectations

With U.S. defence focus diverting to China and now Latin America, European commitment to defence autonomy has become even more of a necessity and will be a costly one economically.  It is estimated that Europe will need to spend at least $1 trillion to be able to defend itself, which begs the question, how to finance this investment?  NATO head Rutte suggests that allocation required as a percentage of GDP might be as high as 10%.  Increasingly, private investment will become an alternative to help ease some of this fiscal burden. The Indo-Pac ex China region will be the beneficiary of renewed focus on defence and modernisation.  If Europe is spending more as a percentage of GDP, pressure will be on Indo-Pac ex China to spend more as well to better align with the region’s rising geopolitical and strategic importance in the mind of the U.S.[11]

Key Charts in Focus

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

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

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

Defence ETF Performance
As of 31/01/2026


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.wsj.com/world/europe/europes-1-trillion-race-to-build-back-its-defense-industry-db8ca1d6

[2] https://english.almayadeen.net/news/politics/european-nato-allies-to-conduct-major-drill-minus-us-troops

[3] https://san.com/cc/nato-chief-says-europe-is-dreaming-if-it-thinks-it-can-defend-itself-without-us/

[4] https://www.bloomberg.com/news/articles/2026-02-05/private-credit-joins-race-to-rebuild-europe-s-defense-industry

[5] https://www.devdiscourse.com/article/headlines/3796021-kongsberg-secures-major-european-defense-contract?amp

[6] https://www.stripes.com/theaters/asia_pacific/2026-01-16/ndaa-indopacific-cooperation-china-20422442.html

[7]https://www.defensenews.com/industry/techwatch/2026/02/04/russian-arms-makers-vanish-from-asias-largest-airshow/

[8] https://ts2.tech/en/ondas-onds-stock-steady-premarket-after-7-pop-on-asia-pacific-defense-deal-rotron-buy/

[9] https://primaryignition.com/2026/02/06/red-cat-shares-retreat-despite-securing-key-asian-pacific-defense-contract/

[10]https://www.bloomberg.com/news/articles/2026-02-01/india-to-spend-18-more-on-weapons-as-pakistan-tensions-persist

[11] Source: Vettafi.

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