Amidst global uncertainty and security concerns, defence companies have attracted greater attention from investors since the beginning of Russia’s full-scale war in Ukraine in February 2022. It has not gone unnoticed by management companies specialised in exchange-traded funds (ETF).
AUM rise from zero to $4.4bn in March 2023
First movers have seen tremendous rewards, thanks to rapid gains in assets under management and performance for their investors, a virtuous circle for ETF providers.
Launched in 31 March 2023, Vaneck’s Defence ETF--the largest such exchange-traded fund in terms of assets under management ($4.4bn as of 15 April 2025) in Europe according to justetf.com--provides investors with “access to leading defence technology companies, large-scale cybersecurity firms and defence-relevant service providers.”
The asset manager claims that it invests in “pure-play exposure to companies involved in the defence industry” in “at least” 25 companies and ensures a controversial weapon “screening.” It is an article 6 fund under the Sustainable Finance Disclosure Regulation, which means it does not have any environmental or social criteria to meet.
More costly US focus or cheaper European alternative?
At 0.55%, the total expense ratio (TER) is one of the highest amongst defence ETFs in the market, according to justetf.com (TERs run from 0.35%-0.65%). Its underperformance compared to the benchmark (Marketvector Global Defence Industry Index) in the last year until 31 March 2025 (44.81% vs 44.17%) largely reflected the TER impact.
More than 53% of its exposure is in US companies, whilst 91% of the assets are invested in industrial complexes and 9% in information technology firms. Launched on 4 March 2025, the Wisdomtree Europe Defence Ucits ETF from Wisdomtree has experienced phenomenal inflows. It is the number three ETF player in terms of AUM (€1bn) and offers a European-companies-only alternative with a TER of 0.40%.
Questioned by Paperjam, Vaneck provided the following written answers.
Sylvain Barrette: Why a global ETF and not a European ETF?
Vaneck: Vaneck Defence ETF was the first ETF in Europe to provide exposure to the defence sector; therefore, we decided to give investors an opportunity to buy all in one portfolio of defence sector stocks from Nato and several other allied countries.
Are there any plans to set up an ETF based only on European companies?
We are closely monitoring recent developments and new product launches in the defence ETF space. With our current fund, we are proud to offer the first--and still the largest--defence-focused ETF available to European investors. In response to growing investor interest, we are actively exploring the possibility of launching a European-focussed version. However, at this stage, it remains challenging to achieve sufficient diversification using only European defence companies--particularly whilst upholding our strict exclusion criteria for controversial weapons. Maintaining these standards is a key priority for us, but it does significantly reduce the investable universe.
Who are the main investors in your ETF?
Vaneck Defense ETF amassed approximately $4.3bn in assets under management [at the time of writing this email, 6 April 2025] and collected a large client base, including a large pool of institutional investors, as well as an ever-growing number of retail investors.
Why is it domiciled in Ireland and not in Luxembourg?
Vaneck domiciles all its newly launched ETFs in Ireland, benefiting from the country’s favourable dividend withholding tax agreement with the United States, which is particularly important for the defence ETF, holding more than 50% of its assets in US stocks.
What’s the ticker: DFEN or DFNS?
Vaneck Defence Ucits ETF is listed on five major European stock exchanges, with most of them utilising the ticker DFNS, which we also normally use internally. At the same time, investors willing to buy it on German stock exchanges could find the ETF under the ticker DFEN.