On March 6, 2025, European Union leaders greenlit an ambitious €800 billion defense proposal, dubbed "ReArm Europe," aimed at bolstering the bloc’s military capabilities amid escalating global tensions. Unveiled by European Commission President Ursula von der Leyen, this plan—sparked by Russia’s war in Ukraine and uncertainties over U.S. support—promises to reshape capital markets and unlock significant investment opportunities, particularly in the military sector. For investors, ETFs like the Select STOXX Europe Aerospace & Defense ETF ( $Select STOXX Europe Aerospace & Defense ETF(EUAD)$ ) and the VanEck Global Defence ETF ( $Vaneck Global Defence Etf(DFND.AU)$ ) stand out as accessible ways to tap into this defense surge. Beyond these ETFs, additional avenues in stocks and related industries offer further potential. Here’s how this landmark proposal impacts markets and where savvy investors might find value.
This table summarizes the main elements, highlighting the ongoing nature of some decisions and the four-year implementation horizon.
A Market Shift Driven by Defense Spending
The EU’s plan, which includes a €150 billion loan scheme and fiscal flexibility for member states to boost defense budgets by up to €650 billion over four years, is set to ripple through capital markets. Bond markets could see higher yields as the EU and its members issue more debt, potentially making bonds less attractive unless offset by investor confidence in Europe’s security-driven spending. Research warns of a possible "bond tantrum" due to increased borrowing, yet recent stability in yields—like Germany’s 10-year bund at 2.48%—suggests markets are adapting.
Meanwhile, stock markets are buzzing with optimism. European indices have hit all-time highs, fueled by expectations of economic stimulus from this spending spree. The defense sector, in particular, is poised for growth, with the Stoxx Europe aerospace and defense index up nearly 30% since January 2025. Adding an unexpected twist, the euro has surged to a three-month high above 1.06 against the dollar, reflecting investor faith in Europe’s strategic moves despite the debt load.
Spotlight on EUAD and DFND: Your Gateway to Defense Gains
For those looking to ride this wave without diving into individual stocks, two ETFs stand out as prime vehicles:
-
EUAD: This ETF tracks the STOXX Europe Total Market Aerospace & Defense Index, which has climbed almost 30% since the start of 2025, driven by expectations of higher military spending, focusing on European heavyweights like Airbus, BAE Systems, and Leonardo. With the EU prioritizing investments in air defense, drones, and ammunition, EUAD offers a direct line to companies set to benefit most from the €800 billion windfall. Its low expense ratio and regional focus make it an efficient play for Europe-centric investors (ETfdb.com).
-
DFND:AU – The Accessible Australian Play
For Aussie investors on Tiger Brokers, the VanEck Global Defence ETF is a standout. Launched on September 12, 2024, as Australia’s first global defense ETF, it trades in AUD on the ASX at around $28.45. Tracking the MarketVector Global Defense Industry (AUD) Index, it includes leaders like Palantir (U.S.) and European firms set to gain from the EU’s focus on air defense, drones, and more.
Up 42.25% from its 52-week low of $20.00, it’s riding the defense wave.
Comparison: EUAD offers tighter EU focus and lower costs but lacks DFND:AU’s accessibility and broader global reach, including U.S. exposure. Both seem poised to benefit as spending ramps up.
Should You Invest in EUAD and DFND:AU Now?
Deciding whether to invest in EUAD and DFND:AU right now—March 9, 2025—depends on weighing the opportunities against the risks in light of the EU’s €800 billion defense proposal. Let’s break it down for a clear, straightforward take.
1. Why Now Might Be a Good Time
The EU’s "ReArm Europe" plan will invest significantly in defense over the next four years, starting in 2025. This includes €150 billion in loans and up to €650 billion in fiscal flexibility for member states, targeting areas like air defense, drones, and ammunition—exactly the domains EUAD and DFND:AU are built to capture.
-
Market Momentum: European stock markets are riding high, with the Stoxx Europe aerospace and defense index up nearly 30% since January 2025. This suggests strong investor confidence in defense-related growth, which could lift both ETFs.
-
Euro Strength: The euro’s unexpected climb to a three-month high above 1.06 against the dollar could boost returns for non-euro investors, making now an appealing entry point if you’re buying in another currency.
-
Early Stage Opportunity: With implementation just beginning, buying now positions you ahead of potential contract awards and spending rollouts, which could drive defense stocks—and these ETFs—higher in the near term.
Risks to Consider
It’s not all smooth sailing. Here’s what could make you pause:
-
Funding Uncertainty: Some EU countries, like Germany and the Netherlands, prefer loans over grants, which might delay fund disbursement. If delays hit, ETF gains could stall.
-
Market Peaks: With stocks at all-time highs, there’s a risk of a pullback. If the broader market cools or inflation spikes from this spending, interest rates could rise, pressuring valuations.
-
Geopolitical Volatility: The defense sector thrives on tension, but any de-escalation (say, in Ukraine) or shift in U.S. policy could dampen the urgency, affecting growth prospects.
-
DFND:AU: The current price of $28.45 is 2.89% above its 52-week high of $27.65 (March 5, 2025), hinting at a possible near-term pullback if markets cool.
Beyond ETFs: Additional Opportunities in the Military Sector
The defense boom extends beyond ETFs, offering diverse entry points:
-
Individual Stocks: Companies like Rheinmetall, Thales, Saab, and Rolls Royce are poised to thrive as contracts for missiles, military tech, and aircraft pile up. These firms, publicly traded across European exchanges, could see significant upside.
-
Dual-Use Technology: Firms in cybersecurity, satellite systems, or other dual-purpose tech stand to gain, especially as the European Investment Bank eyes expanding its mandate for military applications.
-
Supporting Industries: Logistics and supply chain players servicing defense projects—think military mobility and infrastructure—could quietly profit as the EU enhances its capabilities (EIB).
My Take
Research suggests now could be a solid time to invest in EUAD and DFND:AU if you’re bullish on Europe’s defense push. The sector’s momentum, the euro’s strength, and the early-stage nature of the €800 billion plan tilt toward opportunity. However, the evidence also flags risks—funding hiccups and market highs mean timing isn’t risk-free. If you’re considering it, think about:
-
Your Horizon: If you’re in for the long haul (say, 3-5 years), buying now could catch the upside as spending unfolds. Short-term traders might face choppier waters.
-
Diversification: Pairing these ETFs with other assets could offset sector-specific risks.
-
Dollar Cost Averaging: Instead of going all-in, spreading purchases over a few months might mitigate volatility.
Bottom Line
Yes, investing in EUAD and DFND:AU now looks promising based on current trends—market optimism and the EU’s commitment signal growth potential. But weigh the risks, especially funding delays and market peaks, and align it with your goals. Check with a financial advisor to tailor it to your situation, and keep an eye on updates as the plan rolls out.
Comments