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Canadian defense ETFs gained momentum last week as investors reacted to a landmark shift in U.S. military spending, with the White House proposing a $1.5 trillion defense budget for 2027 — the sharpest single-year increase since World War II.

The sector benefited from the combination of an escalating financial burden tied to the ongoing U.S. conflict with Iran, renewed political urgency around defense procurement, and continued global security instability. Both Canadian-listed strategies tracked here delivered positive weekly returns, extending a broader trend that has made defense one of the most closely watched investment themes of the year.

Iran Conflict Drives Unprecedented Defense Spending Request

Markets reacted sharply to the White House’s Friday budget request, which would lift Pentagon spending by more than 40% in a single year. The proposal comes as the United States remains locked in active conflict with Iran — now in its fifth week — with U.S. media reporting, citing closed-door congressional briefings, that the war could be costing as much as $2 billion a day. The administration framed the request as a wartime necessity, arguing that military investment must take precedence over federal social programs.

President Trump has been explicit about the trade-offs involved. “It’s not possible for us to take care of day care, Medicaid, Medicare,” he said at a recent private event, suggesting such responsibilities could shift to state governments while Washington focuses on “military protection.” To offset part of the increase, the proposal includes roughly $73 billion in cuts to non-defense spending, targeting programs the administration characterized as wasteful.

Investors have interpreted the continued uncertainty in the Middle East — with Iran’s latest peace proposals widely seen as insufficient — as a sign that global military tensions are unlikely to ease in the near term, sustaining the investment case for defense-related equities.

Political Battle Shapes the Path Forward

The $1.5 trillion request is not binding but serves as a clear statement of the administration’s priorities as Congress begins drafting spending legislation. Trump is seeking to move more than $1.1 trillion through the standard appropriations process, while pushing a further $350 billion through a party-line mechanism that would bypass Democratic opposition.

Republican leaders have shown openness to the approach, with Senate Armed Services Committee Chairman Roger Wicker and his House counterpart Mike Rogers praising Trump for “sending a clear signal” to allies on defense commitment. But the plan faces headwinds within the GOP itself: with the U.S. already running annual deficits approaching $2 trillion and total federal debt exceeding $39 trillion, a number of lawmakers are wary of further widening the fiscal gap.

Democrats have attacked the proposal forcefully. Senate Budget Committee Ranking Member Patty Murray called it reckless, accusing the administration of prioritizing “bombs in the Middle East over families here in America.” Several lawmakers from both parties have also raised concerns about the limited detail provided on the trajectory of the Iran conflict, and the domestic cuts proposed — many of which Congress has previously rejected — face similar skepticism.

Broader Security Picture Reinforces the Defense Thesis

The U.S. budget proposal arrives against a backdrop of widening global instability. Geopolitical risks in the Gulf remain elevated, with drone attacks targeting infrastructure in the United Arab Emirates adding to tension in the region. Fragile back-channel negotiations between Washington and Tehran have so far failed to produce a breakthrough, with Iran’s latest proposals viewed as falling well short of what would be required for a lasting settlement.

Beyond the Middle East, NATO allies continue to accelerate rearmament programs, and defense manufacturers on both sides of the Atlantic are receiving large-scale orders tied to ammunition, missile systems, surveillance technology, and air defense capabilities. The combination of active conflict, expanded procurement pipelines, and rising defense budgets across major economies is increasingly positioning defense as a structural investment theme rather than a short-term geopolitical trade.

Canadian Defense ETFs Extend Weekly Gains

Against that backdrop, Canadian-listed defense ETFs delivered solid performances over the week.

The Global Defense category gained 4.96% over the week, while the U.S. Defense category rose 4.25%. Year-to-date, U.S.-focused strategies have outperformed their global counterparts by a meaningful margin, with the American aerospace and defense space benefiting directly from the scale of domestic military spending.

The Global X Defence Tech Index ETF – CAD (SHLD) climbed 4.96% during the week, bringing its year-to-date inflows to $110.1 million. The fund, with assets under management of approximately $245.7 million, offers broad exposure to global defense technology companies including surveillance systems, aerospace electronics, and next-generation military platforms.

The iShares U.S. Aerospace & Defense Index ETF – CAD (XAD) gained 4.25% on the week. With assets of approximately $173.5 million and year-to-date inflows of $60.8 million, XAD has been the stronger performer on a year-to-date basis, up 5.90% compared to SHLD’s 1.25% — a gap that reflects the outsized momentum in U.S. defense and aerospace equities at a time when American military spending is accelerating most sharply.

The scale of the proposed U.S. budget increase, combined with the ongoing financial pressure of the Iran conflict and a global security environment showing few signs of stabilization, is reinforcing defense as one of the most compelling structural investment themes available to Canadian ETF investors.

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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.