Defense ETFs Stabilize After Ceasefire Reports: Why 3 ETFs Have Long-Term Potential

Defense ETFs have shown resilience in the face of geopolitical uncertainty, with three prominent funds maintaining their gains even after reports of a ceasefire between Israel and Hamas. The iShares U.S. Aerospace & Defense ETF (ITA), Invesco Aerospace & Defense ETF (PPA), and SPDR S&P Aerospace & Defense ETF (XAR) have all held on to their weekly gains, despite the broader U.S. stock market's stumble. This article explores the long-term potential of these defense ETFs and the factors driving their growth.



Geopolitical tensions and conflicts have historically been a boon for defense stocks and ETFs. The Middle East war, for instance, saw heightened government spending on military contracts, propelling the Global X Defense Tech ETF (SHLD) to a 35% gain over the past year, according to Benzinga Pro. Companies in this sector see increased demand during conflicts due to the surge in need for defense systems, technology, and equipment. While the ceasefire signals a de-escalation in the Middle East conflict, defense stocks and ETFs are unlikely to lose their long-term optimism. Geopolitical risks remain a persistent concern, and governments worldwide continue to prioritize defense budgets.



The growth of defense ETFs is driven by several key factors, which can be considered sustainable in the long term:

1. Increasing Geopolitical Tensions and Conflicts: Ongoing wars and tensions in various regions, such as the Middle East, Ukraine, and the South China Sea, have led to increased demand for defense systems, technology, and equipment. This surge in demand has boosted the performance of defense ETFs.
2. Rising Defense Budgets: Governments worldwide are prioritizing defense budgets, leading to increased spending on military-related industries. In 2023, global military expenditure grew 7% to $2.43 trillion, the steepest annual rise since 2009, and is expected to grow nearly 40% to $3.1 trillion by 2030, according to a Stockholm International Peace Research Institute report.
3. Integration of Advanced Technologies: The integration of advanced technologies like AI, cybersecurity, and unmanned systems in defense systems is pushing demand higher. As defense companies adopt these technologies, they become more attractive to investors, further driving the growth of defense ETFs.
4. Investor Interest: Investors are increasingly interested in the defense sector due to its stable revenue streams and potential for growth. The launch of new defense-focused ETFs in Asia Pacific, such as the VanEck Global Defence ETF in Australia, reflects this growing investor interest.
5. Diversification and Risk Management: Investing in defense ETFs can provide diversification and risk management benefits, as the sector tends to perform well during times of geopolitical uncertainty and market volatility.

These factors suggest that the growth of defense ETFs is sustainable in the long term, as they are driven by underlying trends in geopolitics, defense spending, and technological advancements. However, it is essential to monitor geopolitical developments and defense spending trends to assess the sustainability of this growth.

In conclusion, defense ETFs have shown resilience in the face of geopolitical uncertainty, with three prominent funds maintaining their gains even after reports of a ceasefire between Israel and Hamas. The long-term potential of these defense ETFs is driven by factors such as increasing geopolitical tensions, rising defense budgets, and the integration of advanced technologies. Investors should consider these ETFs as a stable and growth-oriented addition to their portfolios, given the persistent geopolitical risks and the sector's potential for long-term growth.