Some exchange-traded funds tracking stocks in aerospace and defense have had a strong start to the year, extending the prior year’s rally as open-ended wars continue to rage globally.
The Russian invasion of Ukraine and multiple conflicts in the Middle East mean that defense spending is no longer just reactive to rare geopolitical events but set to remain at a constant high level. As a result, investor interest in defense stocks has remained at a consistently high level, rather than ebbing and flowing in response to geopolitical events.
After a blistering rally during 2025, defense stocks’ performance has diverged this year, with some, including German heavyweight Rheinmetall RHM, experiencing corrections.
Still, even as investors have rotated toward sectors with better incremental earnings momentum such as AI and semiconductors, the Morningstar Global Aerospace & Defense Index is up 8.3% year to date through June 23 in euro terms.
At the same time, Europe-domiciled thematic ETFs exposed to the defense sector have been able to attract EUR 2.4 billion of net inflows in the first five months of 2026.
The rationale for investors is straightforward: More global tension leads to higher defense budgets, which eventually means more revenue for defense companies. According to research provider Forecast International, global top-line defense spending is expected to reach USD 2.6 trillion by the end of 2026, marking an 8.1% increase over 2025.
The 10 Best-Performing Defense ETFs in 2026
Exchange-traded funds can offer a well-diversified and inexpensive way to invest in the defense sector. European investors can choose from 19 different ETFs exposed to the industry, most of which were launched in 2025. The top 10 performers since the start of the year are:
- Invesco Defence Innovation UCITS ETF IDFN
- ARK Space & Defence Innovation UCITS ETF ARKX
- Kotak Indo-Pacific Defence UCITS ETF QUAD
- HANetf Future of Defence Screened UCITS ETF NATE
- HANetf Future of Defence UCITS ETF NATO
- HANetf Future of European Defence Screened UCITS ETF Acc 8RMY
- iShares Europe Defence UCITS ETF EUR DFNC
- WisdomTree Europe Defence UCITS ETF EUDF
- Xtrackers Europe Defence Technologies UCITS ETF XDEF
- Deka Europe Defense UCITS ETF D6RU
Of these 10 strategies, however, only the first three were able to outperform international stock markets in 2026, with the Morningstar Global Markets Index up 12.7% through June 23.
For the Invesco Defence Innovation ETF, by far the best-performing fund, top contributors to the rally include US defense stock Kopin Corp KOPN, Iridium Communications IRDM and TTM Technologies Inc TTMI, which this year are up 110.7%, 158.2% and 213.7%, respectively.
Morningstar Metrics for the Best-Performing Defense ETFs
Invesco Markets II plc - Invesco Defence Innovation UCITS ETF IDFN
- Fund Size: EUR 138.2 million
- Morningstar Category: Equity Industrial Materials
- Ongoing Charge: 0.35%
The passively managed Invesco Defence Innovation UCITS ETF gained 4.98% over the past month, outperforming the average fund in the equity industrial materials category, which rose 3.86%. The fund placed in the 44th percentile for performance and beat its benchmark by 2.15 percentage points. The EUR 138.2 million fund has gained 30.05% year to date, while the average fund in its category is up 13.55%.
ARK Space & Defence Innovation UCITS ETF ARKX
- Fund Size: EUR 40.7 million
- Morningstar Category: Equity Industrial Materials
- Ongoing Charge: 0.75%
The €40.7 million ARK Space & Defence Innovation UCITS ETF rose 4.92% over the past month. The gain on the actively managed fund beat the 3.86% gain on the average fund in the equity industrial materials category, leaving it in the 44th percentile for performance. The fund beat its benchmark by 2.09 percentage points. Year to date, the ARK fund rose 24.86%.
Kotak Indo-Pacific Defence UCITS ETF QUAD
- Fund Size: EUR 21.1 million
- Morningstar Category: Equity Industrial Materials
- Ongoing Charge: 0.59%
Over the past month, the passively managed Kotak Indo-Pacific Defence UCITS ETF fell 1.14%, while the average equity industrial materials fund gained 3.86%. The €21.1 million fund has climbed 19.04% year to date, outperforming the average fund in its category, which rose 13.55%.
