A new era for defense

Global defense spending reached an all-time high of $2.4 trillion in 2024, rising 6.8%, which represents the steepest increase since 2019. Beyond the heightened demand being created by prolonged conflicts in Ukraine and the Middle East, is the need for equipment modernization and increased spending after many years of underinvestment.  

The “Peace Dividend” era when countries could focus on domestic programs instead of military defense spending is over. Among NATO member countries, the 2% of GDP spending target has been another driver behind increased spending. With 23 of NATO’s now 30 member countries (Finland and Sweden joined since Russia’s invasion of Ukraine) meeting the 2% of GDP target, higher targets are being proposed. The European Union has proposed an increase to 3% of GDP, while the Trump Administration is demanding an increase to 5% of GDP. Regardless of the end spending target percentage, the trend for spending on defense is moving higher to the benefit of defense stocks. 

Modern defense story

In addition to more spending, the kind of spending is also changing in favor of modern approaches that leverage technological solutions over more boots on the ground.  Cyberspace has become a new military domain in addition to land, air, and sea. This translates into more spending in areas such as artificial intelligence, robotics, unmanned vehicles, drones, cyber defense, and other modern defense solutions. 

VettaFi’s Global Defense Leaders Index

VettaFi’s Global Defense Leaders Index (VGDEF) tracks the market performance of companies listed globally in select exchange countries that provide exposure to the national defense industries of NATO and major non-NATO ally countries. Global military spending among NATO members and its allies has accelerated in response to rising global aggression around the world and the rising need for modernized defense solutions. NATO members currently comprise 55% of the world’s military expenditure.

Companies in the index are exposed to global defense spending such as military aircraft, defense equipment, and future of defense technologies stand to benefit from increased spending levels and the need for modern defense solutions like autonomous vehicles, counter drone systems, and artificial intelligence.  

The largest holding in the index is AI big data analytics firm Palantir Technologies which was the top-performing stock last year in the S&P 500, up 340%. Rising military spend and increased order backlogs are driving outsized returns among defense and defense technology companies.  

Changing story requires change in exposure

Our Index construction methodology provides exposure to the changing realities of modern defense, holding both traditional defense players and companies on the bleeding edge of modern defense technological innovation. While past performance is not indicative of the future, our index approach has delivered strong returns relative to traditional defense indexes and those focusing on technology alone. 

If you would like to learn more about VettaFi’s new Global Defense Leaders Index (VGDEF), please reach out using the form here.