ETFs Reveal a Growing Gap in U.S. vs. EU Defense Stock Performance

Global X Defense Tech ETF

SHLD

-1.83%

The Global X Defense Tech ETF

is a bit of a sleeper hit from Global X, launched in September 2023 with little fanfare but gaining significant traction in 2024 and 2025.

Thanks to accelerated inflows, SHLD now boasts $902 million in assets under management (AUM), reflecting growing investor interest in the defense technology sector.

SHLD tracks the Global X Defense Tech Index, a proprietary benchmark that sets it apart from traditional defense ETFs by offering global diversification.

While U.S. defense giants such as RTX Corp. (formerly Raytheon), Northrop Grumman, Lockheed Martin, and General Dynamics are well-represented, the fund also includes European defense contractors like Rheinmetall, Leonardo, Thales, and BAE Systems among its 37 holdings.

As SHLD has grown, it has also seen improved trading volume, which has helped tighten its spreads. The 30-day median bid-ask spread is now 0.12%, which, while not the tightest among defense ETFs, is understandable given its exposure to foreign equities.

Since its inception, SHLD has delivered an impressive 43.77% annualized NAV return, as of the end of February 2025. In addition to its strong performance, the ETF also offers decent tax efficiency with a low 0.69% 30-day SEC yield.

Themes Transatlantic Defense ETF

NATO

-1.66%

The Themes Transatlantic Defense ETF

sports a ticker that is an obvious nod to the North Atlantic Treaty Organization (NATO).

For those unfamiliar, NATO is a military alliance formed in 1949 to provide collective defense among 30 member countries, primarily in North America and Europe.

Its Article 5 is particularly significant, stating that an armed attack against one member is considered an attack against all, a principle that has only been invoked once—after the September 11, 2001 attacks.

Like many thematic ETFs, NATO tracks a Solactive benchmark, specifically the Solactive Transatlantic Aerospace and Defense Index. Companies must be aerospace and defense firms headquartered in a NATO member country to qualify for inclusion.

With a 0.35% expense ratio, NATO is competitively priced but faces the same liquidity issues that SHLD experienced early on. The fund currently has a high 0.42% 30-day median bid-ask spread, which could pose a challenge for investors seeking tighter execution on trades.

However, NATO offers a broader portfolio than SHLD, holding 64 stocks compared to 37. The top holdings reflect its international focus, including BAE Systems, Rolls Royce, Safran, Airbus, and Rheinmetall.

Only 61.6% of the fund is U.S.-domiciled, providing significant foreign exposure to European defense contractors that may benefit from shifting geopolitical dynamics.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.