SHLD: A Defensive ETF Leveraging Liquidity, Momentum, and Geopolitics

SHLD is a Global X Defense Tech ETF that captures the structural transition across the defense and security sector globally. It is well-positioned to benefit from escalating conflicts, the technological arms race, and integration of new technologies in defense. The ETF provides investors with exposure to companies that produce defense-related products and services, including those involved in the production of weapons, drones, cybersecurity, and space technology.

The Global X Defense Tech ETF (SHLD) is a thematic exchange-traded fund (ETF) designed to provide investors with broad exposure to the global defense industry. Launched by Global X, a subsidiary of Mirae Asset Financial Group, SHLD seeks to track the performance of the Global X Defense Tech Index, which includes companies involved in the development and production of defense technology, such as aerospace and defense companies, cybersecurity firms, and defense contractors [1].

SHLD is heavily focused on the Industrials sector, with approximately 85.77% of its assets allocated to this sector. The top 10 holdings in the ETF include companies such as Raytheon Technologies (RTX), General Dynamics (GD), and Lockheed Martin (LMT), which are major players in the defense industry [1]. In addition to its sector exposure, SHLD also provides geographic diversification, with significant investments in the United States (63.6%) and Europe (14.7%). This diversification helps to mitigate the risks associated with investing in a single geographic region [1].

The launch of SHLD coincides with the increasing importance of the defense industry, driven by factors such as geopolitical tensions, technological advancements, and the growing demand for cybersecurity solutions. As the global defense market continues to grow, SHLD offers investors a convenient and cost-effective way to gain exposure to this sector.

SHLD has shown strong performance, with a year-to-date return of 19.71% and a 1-year return of 20.21% as of July 2, 2025 [1]. The ETF has an expense ratio of 0.50%, which is relatively low compared to other sector ETFs, making it an attractive option for investors seeking cost-effective exposure to the defense sector.

Investment Thesis
The Global X Defense Tech ETF (NYSEARCA:SHLD) is positioned as a direct tool to capture the structural transition across the defense and security sector globally. Escalating conflicts, the technological arms race, and the integration of artificial intelligence systems, cybersecurity, and space exploration are redefining the industry. This ETF offers a diversified exposure to these tendencies, covering both traditional contractors such as Lockheed Martin (LMT) or Northrop Grumman (NOC), and advanced technology companies applied to defense. At a price of $62.2, the SHLD reflects the strength of its idea, although we must bear in mind that it also faces the challenges of a highly regulated and cyclical sector [2].

Composition of the ETF
The fund maintains a diversified portfolio with 45 positions, although its top 10 accounts for 62.03% of the total. The largest exposure is to US companies, but also includes European leaders such as Rheinmetall (RHM.DE) and Leonardo (LDO.MI) [2]. Momentum is one of its strongest points. In the last 6 and 12 months, the ETF rose +53% and +73% respectively, while the median of ETFs barely rose +4% and +11%. That implies a performance 5 to 12 times higher than the market [2].

Liquidity
SHLD shows outstanding liquidity, with an AUM of $3.5B, well above the median of ETFs ($259M). The average daily trading volume (1.06M of shares and $62.6M in dollars) is multiples above the market average (+2,600% in volume of shares and +4,100% in volume in $) [2].

Risks
By analyzing the risks facing SHLD, we can highlight the standard deviation (16.7%) and annualized volatility (22.7%) are above average (31-32% higher), implying that returns are more variable. The concentration of the top 10 companies is 62%, which means less diversification than the median (40%). The 1-year tracking error is also high (17% vs 7% median), indicating that it deviates quite a lot from the index that replicates. On a positive note, turnover (14%) is low compared to the median (30%), which implies lower hidden rebalancing costs [2]. Undoubtedly, the greatest risk of SHLD is regulatory and political, as it depends on public procurement and key government decisions.

Conclusion
SHLD has established itself as a reference thematic defense ETF. Its mix of traditional contractors with software and AI innovators makes it a structural bet against the global increase in military spending. The valuation shows a reasonable premium, justified by stable flows and high margins. Momentum and liquidity reinforce its attractiveness, although we must bear in mind that the risks of sectoral concentration, volatility, and dependence on government budgets should not be underestimated.

References
[1] https://money.usnews.com/funds/etfs/technology/global-x-defense-tech-etf/shld
[2] https://seekingalpha.com/article/4814686-shld-etf-liquidity-momentum-geopolitics-are-three-weapons