This Defense ETF May Benefit From Trump’s Push for Increased NATO Spending
A look at one ETF poised to capitalize on the potential spending increase of the military alliance.
As President-elect Trump prepares to take office, some of his more unconventional ideas—like buying Greenland or reclaiming the Panama Canal—have drawn skepticism. That said, one proposal is starting to gain serious momentum: pushing NATO members to step up their defense spending contributions.
The call for more spending, or else
As reported by Reuters, Trump said he believes European NATO members should spend 5% of their GDP on the alliance's defense. As he did in his first presidential term, Trump alluded to the idea that the U.S. would no longer support NATO unless member nations increased their spending.
Many NATO members have historically failed to meet the 2 percent of their gross domestic product (GDP) allocation to defense requirement. But, against the backdrop of the Russia-Ukraine war, member nations have increased their spending by approximately 18 percent.
The collective decision to increase spending
In the summer of 2025, NATO aims to decide on new targets for weapons and troop numbers; these discussions will also include hiking NATO’s existing military spending target of 2% of national GDP, with 3% being floated by some experts as one potential new target.
With rising global defense spending, increased geopolitical tensions, and the rapid adoption of emerging technologies like artificial intelligence (AI) and cybersecurity, defense companies are poised to benefit from this potential increase in spending. Looking at the Stockholm International Peace Research Institute (SIPRI) top 100 arms-producing and military services companies worldwide, as of 2023, American firms are highly present – with 6 of the top 10 being U.S.-based firms.
Investing in Defense ETFs
Investing in defense companies can raise ethical considerations, but these firms play a significant role in the U.S. and global economies. The iShares U.S. Aerospace & Defense Index ETF (Ticker: XAD) offers a strategic solution for investors seeking targeted exposure to specialized industrial equities.
This fund provides access to a diverse range of manufacturers, assemblers, and distributors of aircraft and aircraft components for commercial and private air transport and producers of advanced defense systems such as military aircraft, radar technologies, and weaponry. Tracking the Dow Jones U.S. Select Aerospace & Defense Index, XAD delivers a focused approach to this critical sector.
XAD is a relatively concentrated portfolio with approximately 35 holdings as of January 17, 2025. As gleaned from the previous chart, the fund performed well in the calendar year 2024. With the potential for increased defense spending by NATO members in the upcoming years, many U.S.-based defense firms are poised to benefit.
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.
