Canadian-listed defence ETFs posted their strongest week of the year in the five days to 3 July, yet money did not follow the rally. The Global X Defence Tech Index ETF (SHLD) climbed 9.979% on the week while shedding C$2,614,954 in net redemptions over the same stretch, a case of investors banking gains even as the underlying names kept running. Its counterpart, the iShares U.S. Aerospace & Defense Index ETF (XAD), rose 5.191% on the week on flat flows, taking its year-to-date return to 20.527%, the standout number across the pair.

A UK Spending Boost and a NATO Capacity Warning

The rally had two clear catalysts, both originating outside Canada but flowing straight through to Canadian-listed vehicles tracking global and US defence names. The first was the UK's Defence Investment Plan: outgoing Prime Minister Keir Starmer confirmed an extra £15 billion (US$19.9 billion) in spending over four years, lifting annual UK defence spending to £79.1 billion by 2029, equivalent to 2.7% of GDP. The FTSE 350 Aerospace & Defense index rose almost 5% on the announcement, with Babcock, BAE Systems and Chemring among the gainers, and BAE chief executive Charles Woodburn welcoming the clarity it gave the sector. Market analysts were less unanimous on how far the momentum can run. Some noted valuations already look toppy by some measures, pointing out BAE traded on 27 times earnings in March versus 12 times four years earlier, while others flagged the UK's fiscal constraints and rising gilt yields as a limiting factor on how much further spending can realistically go.

The second catalyst landed later in the week and pushed harder. NATO Secretary General Mark Rutte told the Wall Street Journal that the alliance's weapons contractors are struggling to keep pace with demand, warning that roughly $300 billion in orders already placed with US suppliers is pushing the industry toward what he called the absorption-capacity level, with constrained factory output and personnel shortages the two main bottlenecks. Non-US NATO members raised military spending 20% last year to $574 billion, with Germany's outlays up 24% to $114 billion. US Ambassador to NATO Matthew Whitaker used the moment to call for consolidation among European contractors, arguing that higher budgets need to show up as delivered equipment rather than inflated order books. That framing sets the tone for this week's NATO summit in Ankara, running 7 to 8 July, where market analysts expect fresh contract announcements and joint-production deals, potentially a tailwind for the US foreign military sales exposure embedded in a fund like XAD.

Context and What Comes Next

XAD's 20.527% year-to-date return is the more striking number in the pair precisely because it reflects the older half of this cycle, US aerospace and defence names that had already re-rated well before this year's European spending push accelerated. SHLD's 2.422% year-to-date gain, by contrast, looks more like a fund still working through a rougher start to 2026 despite last week's double-digit weekly pop, a divergence worth watching as the NATO summit potentially reshapes which side of the Atlantic captures the next leg of contract announcements. Barclays, for its part, has argued the broader European re-rating story remains in an early, unglamorous phase, in which spending accelerates faster than earnings or share prices catch up, with the broker projecting European NATO members will lift annual defence spending to US$752.60 billion by 2035 from US$554.25 billion in 2025.

With the Ankara summit running alongside a dedicated defence industry forum this week, and President Trump expected to press allies on implementation of NATO's 5% of GDP target, the coming days carry real potential to move both sides of this pair again, either through headline contract news feeding through to XAD's US-exposed holdings, or through fresh European commitments feeding SHLD's more global mandate.

Canadian Defence ETF Performance, Week Ending 3 July

Group-level figures were supplied under two theme labels, Global Defence (1 fund, C$230,274,282 in assets, +9.979% WTD, +2.422% YTD) and US Defence (1 fund, C$193,805,746 in assets, +5.191% WTD, +20.527% YTD), each theme corresponding to a single fund in this snapshot.

The Global X Defence Tech Index ETF (SHLD) holds C$230,274,282 in assets and returned 9.979% on the week, its strongest showing this year, though the year-to-date return of 2.422% shows most of that came in a short burst. Both weekly and year-to-date flows stand at C$2,614,954 in net redemptions.

The iShares U.S. Aerospace & Defense Index ETF (XAD) holds C$193,805,746 in assets and returned 5.191% on the week, with its 20.527% year-to-date return the strongest in either Canadian fund covered here.

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Fund Data

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.