As most investors would be aware, it's been a rough few months for the stock market. Since the start of November, the S&P/ASX 200 Index (ASX: XJO) is nursing a 1.5% loss despite the 3.2% rally it has enjoyed over the past two weeks. With that in mind, it's fair to say that the VanEck Global Defence ETF (ASX: DFND) puts this performance to shame.
This defence-themed ASX exchange-traded fund (ETF) has been on a tear of late. While the ASX 200 has gone backwards since the beginning of November, DFND units have rocketed from $22.21 each to the current price (at the time of writing) of $29.08. That's a gain worth a whopping 30.91%.
So how has this sector-specific ASX ETF delivered such crushing outperformance over just the past few months?
Well, any ETF's performance depends on the underlying assets it contains within its portfolio. In DFND's case, it is a collection of global companies that are leaders in the aerospace and defence industries.
The VanEck Global Defence ETF offers exposure to nine international markets, including France, Italy, Israel, and Singapore. Saying that, more than half of its current holdings are American. Some of DFND's top allocations include Palantir Technologies, Leonardo, RTX Corp, and Thales.
It might come as little surprise to hear that many of these stocks have had a fantastic run since the start of November, too. Take Palantir. This data analytics company has soared more than 260% over just the past 12 months and 115% since 1 November. Italian defence stock Leonardo has gained more than 107%, while Thales stock has risen over 67%.
With rocket rides like this occurring for many of DFND's top holdings, it's not shocking to see the ETF rise in tandem.
Rising defence spending filters down
So why are investors flooding into defence stocks? Well, it's probably because they are seeing what's happening around the world in this space and acting accordingly. As we know, many of the world's geopolitical spotfires continue to burn in 2025. The fragile ceasefire between Israel and the Palestinian militant group Hamas has spectacularly fractured over the past week. In addition, the war in Ukraine continues to grind on, despite efforts for a cessation of hostilities.
New US President Donald Trump has made much of his continued commitment to American military spending. In addition, Trump has made clear to America's allies that he expects to see their own defence budgets rise. Trump has targeted NATO allies in Europe with these calls for higher military spending, but also those in Asia, including Australia.
If Western countries, from Germany and France to Japan, South Korea, and Australia, all commit to higher military spending, it will be a huge windfall for the kinds of companies in the DFND portfolio.
Jessica Amir, a market strategist at online trading platform Moomoo, perhaps said it best in a recent article in the Australian Financial Review (AFR):
You have to ask yourself, 'if 2 per cent of a nation's income is going on defence each year, regardless of what happens in the economy, why isn't some of your portfolio going to where the world's biggest economies are putting their money?'
Let's see how the VanEck Global Defence ETF fares over the rest of 2025.
