Tom Wickenden
3 minutes reading time
Globally, we are increasingly seeing key investment themes driven by the shifting world order, geopolitical tensions, and increasing desire for national self-sufficiency.
The new US administration has accelerated this trend in seeking to re-nationalise strategic industries and by putting pressure on trade partners and economic competitors alike.
Within Europe and the UK the impact has been clear – a renewed push for defence self-sufficiency, with potential though not assured, spillover benefits for long term economic activity. Much of the increased spending will need to come from larger economies with the capacity to support domestic defence and related industries, notably Germany, France, and the UK.
Estimates have suggested the potential for EU GDP to rise by 0.9% to 1.5% a year if governments meet new 3.5% NATO spending targets and move to buying home grown defence assets.
Source: Goldman Sachs Investment Research, Company Filings, European Council, ECB Data Portal. 2025e are estimates. Scenarios are based on percentage of GDP spending using 2024 EU GDP. Actual results may differ materially from estimates and scenarios.
For investors, the key consideration in the short to medium term is whether to increase allocation to global defence contractors. We continue to monitor growth in order backlogs as a leading indicator of future earnings potential. This growth supports the ability of top defence companies to sustain strong shareholder returns. In 2024, our basket of selected global defence contractors collectively increased their order books by US$119 billion – a 17% rise compared to 2023 levels. Company reports so far in 2025 are pointing to a further acceleration.
Source: Bloomberg, Betashares. Backlog order book value of select global defence contractors 2015 to 2024.
Investment Implications
NATO members’ recent declaration committing to spend 5% of GDP on defence by 2035 reaffirms the structural tailwinds driving global defence stocks over the past 12 months.
We expect Europe’s defence spending to reach 3% of GDP within the next five years, or an additional US$223 billion per year in aggregate (based on 2024 GDP), a figure comparable to capital expenditure on AI infrastructure by the US technology giants.
ARMR Global Defence ETF- ARMR’s index currently holds all of the top 20 defence contractors in the world by defence revenue, headquartered in NATO-aligned countries, including Lockheed Martin, BAE Systems, Rheinmetall, RTX, and Thales.
- These companies are set to be some of the largest beneficiaries of governments implementing the 5% GDP defence spending commitment.
- ARMR has returned 63.2% as of 31 July 2025 since its inception on 2 October 2024.
There are risks associated with an investment in ARMR, including market risk, sector risk and concentration risk. Investment value can go up and down. An investment in the Fund should only be considered as a part of a broader portfolio, taking into account your particular circumstances, including your tolerance for risk. For more information on risks and other features of the Fund, please see the Product Disclosure Statement and Target Market Determination, both available on this website.
