Are these arms manufacturing companies, Rheinmetall, Hensoldt, and Thales, now included in the armaments exchange-traded funds?
Plowing Into the Defense Industry Boom: A Guide for Investors
The defense industry is riding a wave of upward momentum. Beyond individual stocks, investors can also dove into the sector through corresponding ETFs, offering a diversification opportunity. But is this a solid move? Let's delve into it!
The Rheinmetall stock soared over 100 percent, making it one of the top DAX performers last year, thanks to heightened geopolitical turmoils, like the ongoing war in Ukraine and Gaza, creating an escalating demand for defense stocks.
Many countries, particularly NATO members, are beefing up their defense spending amid the turbulent global climate. Germany, for instance, plans to shell out an additional €30 billion yearly from 2028 to meet NATO's two-percent defense spending target. Consequently, companies such as Rheinmetall, Palantir, and Thales have seen substantial profits over the past few years.
To lower the reliance on individual values for portfolio creation, several defense ETFs have emerged. These funds invest in companies that manufacture weapons and weapon systems, ammunition, or communication and surveillance technologies.
A Defense ETF with a 52% Gain
EU investors can dive into the defense sector via the Vaneck Defense ETF (ISIN: IE000YYE6WK5) since March 2023. This ETF follows the Market Vector Global Defense Industry Index and scored a 52 percent gain at the exchange by 2024. Controversial weapon makers, such as those known for producing landmines or cluster munitions, are excluded from the ETF.
The ETF is heavily American-oriented, with U.S. companies accounting for almost 64 percent of the index. In addition to Palantir, European players like Thales and Hensoldt appear in the portfolio, but Rheinmetall is absent.
A Defense ETF that Includes Rheinmetall
The Future of Defence ETF (ISIN: IE000OJ5TQP4) from Han-ETF became popular among investors, generating a 40 percent return by 2024. Rheinmetall represents a share of around 5 percent in this ETF. Although the ETF is dominated by U.S. companies, it tracks a different index, EQM Future of Defence.
Investors can participate in global corporations whose revenue streams are bolstered by NATO and its allies' defense spending. As these spending figures are poised to climb, given the turbulent situations in Germany, Poland, or Japan, ETFs provide a means for diversifying risk from price fluctuations while still tapping into the trend.
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Disclosure: The price of the financial instruments is derived from an index as the underlying. Boersenmedien AG, which holds the rights to this index, has entered into a cooperation agreement with the issuer of the displayed securities, earning remuneration in return.
Investors interested in the defense sector can consider the Vaneck Defense ETF or the Future of Defence ETF to diversify their investments. These ETFs provide a means for participating in global corporations whose revenue streams are bolstered by NATO and its allies' defense spending, offering a potential hedge against price fluctuations while tapping into the upward momentum of the defense industry.
