Future of Defence Report | January 2026

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

US Increasing Defence Spending but Curbing Profits – The Trump Administration is calling for a record $1.5 trillion defence budget for 2027, a sizeable 50% increase from 2026’s $1 trillion levels.  New spending levels are reflective of expensive new “Dream Military” initiatives such as the Golden Dome air defence project and battleship redesigns. The announcement softened the impact on U.S. defence stocks of a new Executive Order seeking to stop defence companies from paying big dividends and buying back their own shares. Shares of General Dynamics, Raytheon, Lockheed Martin and Northrop Grumman each fell following Trump’s comments. The order “will not permit” defence companies to issue dividends or stock buybacks until those firms speed up their production of military equipment and address Trump’s other complaints about the industry such as executive compensation, but it also raises concerns about nationalising the U.S. defence industry. [1][2][3]

European Defence Stocks Hit New Highs after US Move on Venezuela – U.S. military action in Venezuela in the new year has spurred a rally among European defence stocks to two-month highs.  European defence names saw shares jumping as much as 6-7% on the news. In a Jefferies note, it was highlighted that the U.S. strike on Venezuela checks off a key item in Washington’s foreign policy agenda, paving the way for a ceasefire in Ukraine and US aspirations to annex Greenland. Europe may need to deploy troops in Greenland, further supporting European defence stocks and reinforcing the need to ramp up defence budgets quickly. The latest rally of European defence names on US budget headlines and Venezuela military action, reinforces the short-term catalyst of order and backlog momentum. But the price action and rapid shift in sentiment also shows how quickly things can move as geopolitical and defence priorities change. This makes the prospect of peace in Ukraine, less of a long-term headwind. Against this backdrop, German defence company Rheinmetall reiterated its full year guidance, expecting revenue growth of 25-30% and operating margins of 15.5%. Rheinmetall’s projects €26.4 billion revenue and €3.4 billion earnings by 2028, which should equate to 22% upside to its current price. Investors should remain focused on the long-term growth story in European defence as opposed to short-term headlines and trading sentiment shifts. [4][5]

Could Greenland Mark the End of NATO? – The U.S. has revamped talk about wanting to annex Greenland, a territory under Denmark’s control. Experts say that any U.S. attempt to annex Greenland by force would likely be unopposed, but the move could mark the end of NATO.  Top Trump aide Stephen Miller suggested no European country would be prepared to put up a fight to protect Greenland.  It is unlikely that European troops would open fire on American troops.  Further complicating matters, both the US and Denmark are NATO members. Denmark’s Prime Minister Mette Frederiksen warned an American takeover of Greenland would spell the end of NATO. Of NATO’s 32 members, 23 – including Denmark – are also members of the European Union. But despite his ambition to acquire Greenland, which is driving a wedge between the U.S. and its NATO allies, Trump insists that America still stands by the alliance. [6]

Indo-Pac Defence News

India Boost Ties to Southeast Asia – India is strengthening its military ties with Southeast Asian countries with deals to sell advanced missiles and enhancing security cooperation.  India’s outreach to countries such as Indonesia, the Philippines and Vietnam demonstrate its growing strategic role in the Indo-Pacific region. It also supports the push by the US and its allies to counterbalance China in the region.  India is a relatively new player in the region where countries are struggling to build up their own domestic capabilities.  India met last month with Indonesia regarding supplying BrahMos supersonic cruise missiles. A deal would make Indonesia the second country to acquire these missiles, produced under a joint venture with Russia in which India is the majority stakeholder, thus usurping sanctions. India began delivering a shore-based, anti-ship BrahMos missile system to the Philippines under a $375 million deal last year. In addition to arms deals, India has also been helping train troops from several Southeast Asian countries, including Vietnam, Singapore, Malaysia, Indonesia, the Philippines and Thailand, conducting joint naval and military drills with them. [7]

Japan Approves Record Defence Budget – Japan approved a record defence budget plan exceeding 9 trillion yen ($58 billion) for the coming year, aiming to fortify its strike-back capability and coastal defence with cruise missiles and unmanned arsenals as tensions rise in the region. The 2026 budget marks a 9.4% increase over 2025 in the fourth year of its five-year plan to double annual arms spending to 2% of GDP levels. The increase comes as Japan faces elevated tension from China in the region. Recently, Japanese Prime Minister Sanae Takaichi said her country’s military could get involved if China were ever to act against Taiwan to bring it under its rule. Japan has been bolstering its offensive capability with long-range missiles to attack enemy targets from a distance, a major break from its post-World War II principle limiting the use of force to its own self-defence. The new budget plan allocates more than 970 billion yen ($6.2 billion) to bolster Japan’s “standoff” missile capability. It also includes a 177 billion-yen ($1.13 billion) purchase of domestically developed and upgraded Type-12 surface-to-ship missiles with a range of about 1,000 kilometres (620 miles). [8]

China Drill Near Taiwan Sends a Message – China’s two days of military drills in waters off Taiwan last month came closest to Taiwan and were the largest scale exercises in 3 years aimed at deterring US intervention in an actual war. A rocket artillery unit participating in the People’s Liberation Army (PLA) Eastern Theatre Command’s “Justice Mission 2025” drills fired shells into the sea into the contiguous zone 24 nautical miles off Taiwan’s coast on December 30. The unit’s fire took place during PLA drills in five tracts of ocean – described overall as a practice for blocking major Taiwanese air and sea routes with aircraft and naval assets. The drills were largely reported as being in response to the announcement of an $11 billion USD arms sale to Taiwan by the U.S. But after events in Venezuela, there has been a noticeable wave of chatter online speculating that the United States and China made a secret deal over Venezuela in which China turned over Venezuela to the U.S. – potentially in return for trading Taiwan off for China. Similar claims have been made about Russia conceding Venezuela in return for Ukraine. While drills off the waters of Taiwan are typical and not unexpected, the US military attack on Venezuela was a big surprise, fuelling online conspiracy speculation and more geopolitical risk concerns. [9][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 08.01.2026. For illustrative purposes only.

Product Comparisons

Source: VettaFi as of 08.01.2026. For illustrative purposes only.

Source: VettaFi as of 08.01.2026. For illustrative purposes only.

Source: VettaFi as of 08.01.2026. For illustrative purposes only.

NATO 10-28-25 Rebalance

Macro Outlook – US Defence Aspirations Reset Expectations

European defence stocks started the year with a sharp rally in response to US military operations in Venezuela and announced aspirations to annex Greenland.  The US announcement of a $1.5 trillion defence budget for 2027 was tempered by an executive order aimed at prohibiting US company share repurchases and dividend payments. Europe may need to deploy troops in Greenland, or the US may be out of NATO, both outcomes which further support European defence stocks and reinforce the need to ramp up defence budgets quickly. Against the short-term catalyst of current order and backlog momentum, investors are beginning to refocus on the long-term growth opportunity, particularly in Europe. European defence companies have outperformed their US peers over the last year but are trading at a premium discount. A peaceful resolution of the Ukraine conflict will not halt the need for European autonomy and self-sufficiency as the U.S. pursues its own rogue geopolitical roadmap. Defence stocks continue to recover fast from drawdowns given this long-term growth trajectory even amid premium historical valuations. Due to order backlog delays, earnings still lag. But the world is living in unprecedented times and defence companies are experiencing new unprecedented levels of growth. Similarly, the need for defence autonomy is ramping up in the Indo-Pacific region to defend against regional aggression by China.  India is stepping in to meet those needs. Japan is executing on a record military defence budget.  And other nations in the region are ramping up their own defence capabilities in response to the prospect of foreign aggression and rising geopolitical risk. [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 31.08.2026

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.

[1] https://www.politico.com/news/2026/01/07/trump-calls-record-defense-budget-00715298

[2]https://news.usni.org/2026/01/08/trump-executive-order-puts-pressure-on-defense-companies-seeks-to-halt-stock-buybacks

[3] https://www.cnbc.com/2026/01/07/trump-dividends-stock-buybacks-defense-companies.html

[4]https://www.reuters.com/business/aerospace-defense/european-defence-stocks-two-month-high-after-us-move-venezuela-2026-01-05/

[5]https://finance.yahoo.com/news/rheinmetall-xtra-rhm-16-9-131603011.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAFxAdm031vObUnTZNIgxih6EMhN7fOSqObZMM1rN6WNMnY5xtn78xaGoAb3Hzge8zJURei798Z3XgoO_PzFD3Cz8E-v08XWjhVcr45qIXLqKSzYugRlir1CVI9q61KzarliDw7-iQcOZFRMQJxlHkZ0ltQbOvzMqr4aAhcb2cdJ6

[6] https://www.cnbc.com/2026/01/09/nato-trump-greenland-war-invade-defense.html

[7] https://www.defensenews.com/global/asia-pacific/2026/01/06/india-boosts-southeast-asia-military-ties-indo-pacific-role/

[8] https://www.defensenews.com/global/asia-pacific/2025/12/26/japans-cabinet-oks-record-defense-budget-that-aims-to-deter-china/

[9] https://www.defensenews.com/global/asia-pacific/2026/01/08/chinese-drill-near-taiwan-seen-as-test-run-for-blockade-message-to-us/

[10] https://thediplomat.com/2026/01/pla-drills-us-strike-on-venezuela-spark-debate-in-taiwan/

[11] Source: Vettafi

[12] https://finance.yahoo.com/news/venezuela-greenland-rumblings-boost-defense-100116822.html

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