EUAD Leads Equity ETFs as European Defense Spending Surges
Seven of the 10 top-performing equity ETFs are Europe-focused.
The Select STOXX Europe Aerospace & Defense ETF (EUAD) is the top-performing equity ETF over the past month, reflecting Europe's heightened focus on defense spending, according to etf.com's ETF Pulse Tool.
Amid Russia's ongoing invasion of Ukraine and shifting geopolitical dynamics, European nations, particularly Germany, have significantly increased their defense budgets. This surge in spending has positively impacted defense-related industries, contributing to EUAD's impressive returns.
EUAD jumped 20.6% for the month ending March 20, outperforming all non-leveraged equity exchange-traded funds in the ETF universe, according to etf.com data.
Aerospace and Defense Outperform
Confirming the leadership of the aerospace and defense sector, the second-best performing exchange-traded fund of the past month is the Global X Defense Tech ETF (SHLD), which allocates nearly half of its portfolio to non-U.S. defense stocks.
The First Trust Germany AlphaDEX Fund (FGM), which invests in German equities using a proprietary stock selection methodology to seek outperformance, was also a top performer in the past month.
Other Europe ETFs leading performance include the Global X MSCI Greece ETF (GREK), the iShares MSCI Austria ETF (EWO), the First Trust Stoxx European Select Dividend Index Fund (FDD) and the Themes Transatlantic Defense ETF (NATO).
EUAD, Europe-Focused ETFs Outperform
Top equity ETF performance for the month ending March 20, 2025. Data are from the etf.com ETF Pulse Tool—a tracking tool designed to provide investors with insights into the top trending ETFs based on fund flows and performance metrics. ETF Pulse offers a platform to monitor, analyze and capitalize on market trends. Give it a try right here.
How EUAD Works and How it Invests
EUAD seeks to track the performance of the STOXX Europe Total Market Aerospace & Defense Index, which includes European companies deriving at least 50% of their revenues from aerospace and defense activities.
The fund's portfolio encompasses firms involved in manufacturing, servicing and supplying aeronautical and defense equipment, components and systems. By focusing on this sector, EUAD offers investors targeted exposure to Europe's defense industry.
Examples of Aerospace & Defense Industries
- Aircraft Manufacturing: Designing and producing commercial and military aircraft
- Missile and Weapons Systems: Developing missiles, guided weapons and defense systems
- Military Vehicles: Producing tanks, armored vehicles and drones for defense applications
- Space Exploration and Satellites: Manufacturing satellites, launch systems and space defense technology
- Cybersecurity and Defense Technology: Developing cybersecurity solutions for national security and military use
- Naval Shipbuilding: Constructing submarines, aircraft carriers and warships for naval defense
- Radar and Surveillance Systems: Producing radar, sonar and electronic warfare systems for intelligence and security
- Aerospace Components and Avionics: Supplying critical components for aircraft and space vehicles, such as jet engines and flight control systems
- Defense Contracting and Logistics: Providing support, maintenance and supply chain management for military operations
- Unmanned Aerial Vehicles (UAVs): Developing drones for surveillance, combat and reconnaissance missions
Outlook for European Stock ETFs in 2025
The substantial increase in defense spending across Europe is expected to continue influencing the performance of related ETFs. Goldman Sachs Research anticipates that defense expenditures in the euro area will rise from 1.8% of GDP in 2024 to 2.4% by 2027, equating to an annual increase of approximately €80 billion. This trend suggests sustained growth opportunities for ETFs like EUAD.
However, investors should remain vigilant regarding potential challenges, such as political disagreements within the EU on defense strategies and funding allocations. These factors could introduce volatility to the sector. Nonetheless, the ongoing emphasis on strengthening Europe's defense capabilities positions ETFs focused on this sector favorably for the remainder of 2025 and beyond.
