Defence ETF Report | April 2026

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

Iran ‘Not NATO’s War’[1]The U.S. attacked Iran, along with Israel, without consulting NATO allies.  And as the war has become a prolonged conflict, Trump has asked for help from allies, including France, Japan, South Korea, and Britain, and even China, to assist with keeping the Strait of Hormuz functioning as a global shipping channel. Trump said the U.S. was talking to “about seven” countries for military support to help reopen the trade route. But he wouldn’t say which ones and gave no indication of when such a coalition might be formed.  In a separate interview with the Financial Times, Trump warned that “if there’s no response or if it’s a negative response, I think it will be very bad for the future of NATO.”  EU leaders have demanded more clarity on the goals of the engagement. Furthermore, German Chancellor Friedrich Merz’s spokesperson, Stefan Kornelius, clarified “this war has nothing to do with NATO — it is not NATO’s war. NATO is an alliance to defend the alliance area.”  While clearly it is in the interest of Europe and allies to keep the Strait of Hormuz open, they also do not want to be drawn into the wider war. The EU is also anxious about the potential for a refugee crisis from Iran if the war continues.[2]

NATO’s Absence Further Strains Alliance with U.S. – U.S. Secretary of State Marco Rubio said the U.S. may need to reassess its relationship with NATO after the Iran war is finished, calling the military alliance’s lack of support during the Middle East conflict, “very disappointing.” Rubio also criticised NATO members for denying access to military bases. “If NATO is just about us defending Europe if they’re attacked, but them denying us basing rights when we need them, that’s not a very good arrangement,” complained Rubio. Spain has been the main focus of U.S. anger as it closed its airspace to American flights involved in the Iran conflict, effectively blocking the use of U.S. bases in Spain.  UK Prime Minister Keir Starmer has also faced criticism from Trump after initially rejecting the president’s request to allow the US to access the country’s military bases to help carry out strikes on Iran. The UK government has since allowed the US to use bases for “limited defensive action”. The U.S. engagement was relying on being able to use logistics hubs in Germany, airbases in Britain, naval facilities in Spain, and free airspace. Trump and U.S. officials continue to berate in order to coerce European leaders and NATO, which is further fuelling the lack of cooperation.[3]

Defence Stocks Fail to Rally on Iran War – While it seems counterintuitive, defence stocks are not rallying on the Iran conflict.  Defence stocks collectively have experienced their worst March since 2020, the onset of the Covid pandemic.[4] As the war wages on, more and more of American missile stockpiles are being depleted. The first few days of the airstrike against Iran reportedly cost nearly $11 billion, including $5.7 billion for interceptors to shoot down Iranian missiles and drones. The depletion is severe enough that the U.S. is now shifting assets from Asia.[5] While the war should equate to higher military spending over the long-term, it is creating near-term challenges for defence companies at already lofty valuations.  In addition, the spending mix is changing in favour of newer technologies such as AI, drones, and space, with funding for traditional programs growing more slowly and diluting the advantage of defence primes. These spending shifts will become evident when the Trump administration releases its fiscal year 2027 budget request, which is expected to be as much as $1.5 trillion, an increase of 50% over 2026 levels. It is not clear if the $200 billion military request to fund the Iran war is included in that annual budget amount. Another concern for investors is that a prolonged or unpopular war could reshape political support for defence spending, and the U.S. government could take a more direct role in production if supply constraints worsen, constraining corporate profits.[6]

Crowded Trade Contributes to European Defence Stock Decline – While intuition might suggest that the defence sector is an obvious beneficiary from rising geopolitical tensions, de-risking from crowded trades has taken its toll on the sector, along with gold and Korean chip stocks.  European defence stocks gained more than three times as much as the European market over ​the past 12 months, and some companies have surged dramatically since the start of the Ukraine war. Germany’s Rheinmetall for example, is up around 1,700% since 2022. Flows into European defence stocks hit a record level in January. While it defies the long-term positive fundamentals, stock prices that had run the furthest have been hardest hit. Derisking is a common trade under crisis conditions. Navigating uncertainty involves making bold ⁠de-risking and re-risking ​decisions, with stocks de-coupling from fundamentals under a technical correction.[7]

Indo-Pac Defence News

Indo-Pac Defence Names Rally on Iran War – The Operation Epic Fury campaign in the Middle East has triggered a massive rally in defence stocks in the Indo-Pacific region, with firms in South Korea, Japan, and Singapore seeing significant gains. The reasoning behind the rally is detailed below.

The Iran conflict Leaves Asia Feeling Vulnerable – Even heading into the conflict, investment in the region was growing as Asian countries committed to catch-up in spending relative to their European counterparts. But now there are also rising concerns in the region that a protracted conflict in the Middle East and a distracted U.S., may force countries like Japan, South Korea, and India to further accelerate their efforts toward self-sufficiency.  Reports that the U.S. is moving military assets out of South Korea and Japan to the Middle East has raised vulnerability concerns given the U.S. presence in the region is intended to deter Chinese and North Korean aggression.[8]

Heightened Regional Tensions Driving Defence Spending – Japan is planning to double its defence spending to 2% of GDP by 2027 with a 9 trillion yen budget,[9] reversing decades of purely defensive posture. Japan is also seeking to deepen defence cooperation with other countries in the region. India has allocated $24.3 billion for domestic procurement.[10] South Korea plans to increase its defence spending by 7.5% in 2026.[11]

South Korean Defence Stocks Surge –  South Korean firms have been major  beneficiaries of the rally, with stocks like Hanwha Aerospace and Korea Aerospace Industries rising +0.41% and +0.63% respectively from the beginning of February to the end of March.[12] Korean defence companies are seeing both a rise in domestic demand and increased export opportunities and order backlogs for advanced weapon systems, including tanks and precision-guided munitions.

Japanese defence Contractors at Record Highs – Companies like Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and IHI Corp. have reached all time record highs in March as Japan strengthens its own first-strike capabilities and maritime defences.[13]

“Shift Toward Self-Sufficiency” – Similar to Europe, regional governments in Asia are prioritising local manufacturing and building regional alliances (“like the Quad”) to bolster their defence capabilities independent of the U.S.

Asian Tech Leadership –  High demand for modernised defence solutions like drones, surveillance technology, cyber resilience, and maritime capabilities (submarines and destroyers) is driving Asia’s “tech-forward” companies higher.

Attractive Valuations – Analysts believe the sector is in the early stages of a structural upcycle, with Asian defence firms offering more attractive valuations relative to other global defence counterparts.

Company News – Earnings Analysis (NATO)

Company News – Earnings Analysis (NATE)

Company News – Earnings Analysis (ARMY)

Company News – Earnings Analysis (QUAD)

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

NATO 24-04-2026

AddPlanet Labs PbcIndustrialsAerospace and Marine
AddNext Vision Stabilized Systems LtdConsumer DiscretionaryDefence Technology
AddOndas Inc.TechnologyAerospace and Marine
AddNlight Inc.TechnologyDefence Technology
AddYork Space Systems Inc.IndustrialsAerospace and Marine
DeletionBigbear Ai Holdings IncorporatedTechnologyDefence Technology
DeletionDroneshield LimitedIndustrialsDefence Technology
DeletionQinetiq Group PLCIndustrialsWeapons Manufacturing
DeletionTenable Holdings IncTechnologyCyber Security

NATE 24-04-2026

AddBAE Systems PLCIndustrialsWeapons Manufacturing
AddPlanet Labs PbcIndustrialsAerospace and Marine
AddOndas Inc.TechnologyAerospace and Marine
AddNlight Inc.TechnologyDefence Technology
AddYork Space Systems Inc.IndustrialsAerospace and Marine
AddBlackSky Technology IncIndustrialsAerospace and Marine

ARMY 24-04-2026

AddBAE Systems PLCIndustrialsWeapons Manufacturing
AddVincorion SEIndustrialsDefence Technology

QUAD 24-04-2026

AddAstroscale Holdings Inc.IndustrialsAerospace
AddSnt Dynamics Co LtdConsumer DiscretionaryWeapons Manufacturing
AddRf Materials Co Ltd.TechnologyDefence Technology
AddAxiscades Technologies LimitedIndustrialsDefence Technology
AddLungTeh Shipbuilding Co Ltd.IndustrialsMarine
DropKawasaki Heavy Industries LtdIndustrialsAerospace

Macro Outlook – US Defence Aspirations Reset Expectations

The Iran War has had negative ramifications for most areas of the market except for Energy.  U.S. crude prices have spiked to above $100 a barrel, surging 57% in March, the biggest monthly gain since 1988.[14]  Fears of higher inflation have negated hopes for rate cuts this year. Appreciated areas of the market such as defence have defied their long-term fundamentals and sold off in liquidity-driven selling.  Typically, defence stocks rally when there is geopolitical uncertainty, but these crowded trades were not immune from a crowded trade sell-off.  The war has further widened the rift between the U.S. and its NATO allies as they steer clear of active military involvement, with the future fate of NATO post the Iran War on the line.  Europe argues that given they were not consulted on the action, they are not required to be involved. Europe’s resolve for autonomy, self-determination and cooperation has been reinforced, but can NATO survive without the U.S.?  With the focus on the Middle East, Indo-Pac defence stocks have rallied due to heightened vulnerability concerns.

Key Charts in Focus

Data as of 22.03.2026. 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 31.08.2026

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%


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.

Please note that performance for the European Defence ETF and Indo-Pacific Defence ETF are not yet available to show due to the age of the funds.

[1] https://fortune.com/2026/03/16/europe-trump-iran-war-nato-persian-gulf-coalition-warships/

[2] https://fortune.com/2026/03/16/europe-trump-iran-war-nato-persian-gulf-coalition-warships/

[3]https://www.scmp.com/news/world/united-states-canada/article/3348486/us-may-reassess-nato-ties-after-iran-war-ends-rubio-says

[4] https://www.reuters.com/world/us/us-defense-stocks-see-no-iran-war-lift-after-early-surge-2026-04-02/

[5] https://seekingalpha.com/news/4565221-war-isn-t-moving-defense-stocks-the-way-you-d-expect-wsj

[6]https://www.barrons.com/articles/defense-stocks-struggling-help-could-be-on-the-way-291aee4b?gaa_at=eafs&gaa_n=AWEtsqerTk0Yl6A7xNuoZSuYUWawEJ0iiA2BX9SWyB2p81L8vgViSPmk2EBryjD3v8k%3D&gaa_ts=69cc0e2d&gaa_sig=NZ2HghFzmqvuHxQ6i3Xlr5LA8krW2sC8p_anJnLM6S6I02nde-n4c7-jR7f-hxtyhJkXZCvyLnZgEuh5T8MCqw%3D%3D

[7] https://www.reuters.com/markets/commodities/why-gold-defense-stocks-sold-off-war-broke-out-2026-03-26/

[8]https://www.scmp.com/week-asia/politics/article/3346849/us-militarys-iran-war-pivot-forces-asia-pacific-security-rethink

[9] https://www.theguardian.com/world/2025/dec/26/japan-defence-budget-china

[10]https://asiapacificdefencereporter.com/indias-rising-defence-budget-to-boost-private-sector/#:~:text=As%20the%20first%20budget%20after,their%20capabilities%20to%20streamline%20procurement.

[11]https://www.reuters.com/business/aerospace-defense/senior-us-defence-official-colby-visit-south-korea-japan-next-week-yonhap-says-2026-01-23/

[12] Source: Trading View. Data as of 31.03.2026

[13] Source: Trading View. Data as of 31.03.2026

[14] https://www.reuters.com/business/energy/oil-prices-jump-after-yemeni-houthis-attack-israel-widening-iran-conflict-2026-03-29/?utm_source=chatgpt.com

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