The top funds and investment trusts for European defence spending

With European leaders rushing to ramp up defence spending, these funds and trusts could position you to benefit from the trend

An illustrative graphic representing the European Union's military build-up, featuring a dark tank silhouette, the EU flag's stars, and a prominent red upward arrow symbolizing rising trends
(Image credit: mammuth via Getty Images)

European defence spending is on the rise as the continent grapples with an increasingly disinterested US. Which are the top funds and trusts for exposure to this stark new reality?

Funds containing the top stocks for the defence spending boom are enjoying a bull run at the moment. Every day seemingly brings more news of European defence spending commitments, as the continent shakes off the complacency that has set in after decades of the US effectively guaranteeing its security.

European defence stocks have seen significant gains so far this year off the back of the spending commitments.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

“European defence spending has surged in response to growing security challenges. We’ve gone from just six NATO members meeting the 2% of GDP target in 2021 to 23 today – a historic shift,” says Tom Bailey, head of research at HANetf.

“But despite this increase, Europe still faces an €850 billion cumulative defence investment gap since 2014, reinforcing the need for sustained investment in military capabilities.”

While president Donald Trump’s tariffs have sent stock markets into a tailspin, the increased geopolitical uncertainty they have caused has, if anything, been a further positive for European defence stocks. Shares in BAE Systems gained 10.1% since 2 April, the day before Trump’s ‘Liberation Day’, and 14 April, putting the stock up more than 50% so far this year.

“The case for defence stocks seems all too clear, with defence forming a central part of the chancellor’s Spring Statement,” said Annabel Brodie-Smith, communications director at the Association of Investment Companies (AIC).

Chancellor Rachel Reeves’s Spring Statement reiterated previous pledges by prime minister Keir Starmer to ramp up the UK’s spending on defence, with £2.2 billion added to the defence budget in 2025/26 and a target for defence to account for 2.5% of GDP by April 2027.

As well as BAE Systems, Rolls-Royce is rallying off the back of increased spending commitments, gaining 27.9% in the year to date. The share price of Rheinmetall, the largest defence firm in Germany, has risen over 140% so far this year.

But which exchange-traded funds (ETFs) and investment trusts can investors use to gain diversified exposure to the trend?

Investment trusts for European defence exposure

“Some defence companies have seen their share prices soar but that’s not the case across the board,” says Brodie-Smith. “We have identified the investment trusts with exposure to defence which might be best placed to benefit.”

The AIC analysed the investment trusts that have the most defence exposure and singled out the Schroder UK Mid Cap Fund (LON:SCP), which the AIC says has 10% of its assets allocated to defence.

“Our view is that we are at the start of a defence growth supercycle and that’s an area in which the UK is very skilled,” said Jean Roche, manager of the Schroder UK Mid Cap Fund.

Here’s the top 10 investment trusts for defence exposure, according to the AIC:

Swipe to scroll horizontally
Investment trusts with defence exposure

Investment trust

AIC sector

% of assets in selected defence stocks*

Schroder UK Mid Cap Fund

UK All Companies

10.90

Global Opportunities Trust

Flexible Investment

7.75

Invesco Global Equity Income Trust

Global Equity Income

5.40

Law Debenture Corporation

UK Equity Income

5.33

JPMorgan Claverhouse

UK Equity Income

4.70

Artemis UK Future Leaders

UK Smaller Companies

3.90

City of London Investment Trust

UK Equity Income

3.80

European Opportunities Trust

Europe

3.67

European Assets Trust

European Smaller Companies

3.40

Henderson Smaller Companies

UK Smaller Companies

3.31

Source: theaic.co.uk / Morningstar / trust reports and factsheets. Latest available data at 27/03/25.
* Shows exposure to AeroVironment Inc, Airbus SE, Babcock International Group, BAE Systems, Boeing Co, Chemring Group, Dassault Aviation SA, GE Aerospace, General Dynamics +C7Corp, Howmet Aerospace, L3Harris Technologies, Leonardo DRS, Lockheed Martin, Northrop GruMman, Palantir Technologies, QinetiQ Group, Rheinmetall AG, Rolls-Royce Holdings, RTX Corp, Safran, Textron, Thales and TransDigm Group.

Top ETFs for European defence

There are various ETFs available for investors that want to gain exposure to defence stocks.

One of these is the Van Eck Defense UCITS ETF (LON:DFNS), which tracks the MarketVector Global Defence Industry index. According to Trustnet, this was the first defence-focused ETF that European investors could buy when it launched in March 2023.

The first ETF to focus specifically on European Defence companies was the WisdomTree Europe Defence UCITS ETF (LON:WDEF), which listed on the LSE on 12 March. The ETF focuses exclusively on European-based companies in the defence industry.

“A structural shift is underway in Europe as nations increase defence budgets to meet NATO targets and respond to geopolitical challenges,” says Pierre Debru, head of research, Europe at WisdomTree. Debru adds that WDEF “is built around a timely and urgent theme focused on Europe’s push for strategic autonomy in defence amid rising geopolitical tensions.”

WDEF has recently been joined by the Future of European Defence UCITS ETF (LON:ARMY) from HANetf. ARMY follows on from the success of HANetf’s Future of Defence UCITS ETF (LON:NATO), which has almost $2 billion in AUM as of 14 April. While NATO holds companies aligned to any NATO member state (including the US), ARMY focuses specifically on European defence firms.

“We believe that, as a proudly European ETF firm, it is our duty to support investment into the European defence sector as efficient capital markets will allow European champions to expand their capabilities much more efficiently,” says Hector McNeil, co-founder and co-CEO of HANetf.

Dan McEvoy
Senior Writer

Dan is a financial journalist who, prior to joining MoneyWeek, spent five years writing for OPTO, an investment magazine focused on growth and technology stocks, ETFs and thematic investing.

Before becoming a writer, Dan spent six years working in talent acquisition in the tech sector, including for credit scoring start-up ClearScore where he first developed an interest in personal finance.

Dan studied Social Anthropology and Management at Sidney Sussex College and the Judge Business School, Cambridge University. Outside finance, he also enjoys travel writing, and has edited two published travel books