Global X Launches Tech-Focused Defense ETF

The fund seeks to benefit from rising military spending.

Global X ETFs has launched a defense technology exchange-traded fund that aims to capitalize on rising defense spending.  

The Global X Defense Tech ETF (SHLD), which made its debut on Wednesday, tracks companies that focus on security and defense applications of technology such as cybersecurity, advanced weapons systems and security-related artificial intelligence. Global defense spending has risen since 2020, growing at a compound annual growth rate of 4.2%, compared with roughly 1% between 2010 and 2020, according to April 2023 data cited by Global X from the Stockholm International Peace Research Institute. 

Global X’s blog post on SHLD predicts this increased rate of expenditures will continue through 2030. The tech focus is driven by U.S. defense research and development gaining the largest percent increase in military spending between 2012 and 2022, rising to 15% of total U.S. military spending in 2022 from 11% 10 years earlier.  

“We’ve seen the Department of Defense and the Biden administration open their wallets to upgrade defense and national security,” said Tejas Dessai, a research analyst at Global X. 

Defense ETF Has 'Moat' Advantage 

Defense tech firms differ from other technology and industrial companies because of the high barrier to entry for defense contracts. According to Dessai, it’s very difficult to work with the government on such projects because they operate on a very different timescale and set of considerations. That can put a damper on competition and potentially increase profits. 

“You can’t have tech systems for national defense built with the bare minimum of testing and development, so the government gravitates to companies that have established experience and expertise,” Dassai said. 

SHLD’s Geographic Blind Spots 

The fund focuses on companies that derive more than half of their revenue from defense and national security technology, with the aim of being a pure defense-tech investing play. The SHLD press release also says this is “generally unconstrained by geographical limitations,” and while the fund’s top 10 holdings include companies from the U.S., the U.K., Germany and France, there are some major exceptions. 

Dassai says that because of the difficulty accessing local markets, China, Saudi Arabia, Russia, India, Kuwait and Pakistan are excluded from the fund. China, Russia, India and Saudi Arabia are four of the top five countries by military spending, after the U.S.  

The fund has an expense ratio of 0.50%, in line with the average for defense ETFs.

Correction: The name of Tejas Dessai was spelled incorrectly in the fourth paragraph in a previous version of this story.