Defense investment funds

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Investing in defense has been one of the most dynamic themes in financial markets since 2022, placed at the heart of wealth management strategies recommended by many financial advisors. European rearmament, the return of conventional deterrence, and military drone and artificial intelligence programs mean the sector is attracting both institutional and private capital. This guide reviews the main solutions for investing in the sector, from listed ETFs to specialized private equity funds, as well as direct stock investments.

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Why invest in defense?

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Since the Russian invasion of Ukraine in February 2022, European military budgets have seen an unprecedented acceleration since the end of the Cold War. NATO had long set a minimum target of 2% of GDP for defense spending. At the Hague summit in June 2025, Allies committed to increasing the share of GDP dedicated to defense and broader security-related spending to 5% (3.5% for pure defense plus 1.5% for infrastructure, cyber defense, and resilience) by 2035. This commitment represents a near-doubling of current efforts for the majority of European countries, with the exception of Spain, which secured an opt-out at 2.1%.

In France, the Military Programming Law 2024-2030 provides for 413 billion euros over 7 years, an increase of more than 40% compared to the previous period. Germany created a special fund of 100 billion euros in 2022 and now aims for 3.5% of GDP in pure defense by 2030, followed by the 5% NATO commitment in 2035. Poland already exceeds 4% of GDP and targets 5% by 2035. This structural dynamic creates a windfall for manufacturers, who benefit from multi-year order books secured by state contracts.

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The countries on NATO's Eastern flank, on the front line against the Russian threat, have already significantly exceeded the 2% of GDP threshold and are now aiming for 5% by 2035, in line with the commitment made at the Hague summit in June 2025. Poland stands out as a model, with 4.1% of GDP in 2024 and a target of 5% by 2035, making it the Alliance's leading relative contributor.

Major European economies (France, Germany, United Kingdom, Italy) are on an accelerated catch-up trajectory. Germany, long below the NATO threshold, now aims for 3.5% of GDP in pure defense by 2030, then the overall 5% NATO commitment by 2035. France, with the Military Programming Law 2024-2030, targets 3% of GDP in pure defense by the end of the decade, before converging towards the overall 5% by 2035 in accordance with the Hague commitment. These increases mechanically translate into an explosion of order books for listed European manufacturers (Rheinmetall, Thales, Dassault, Leonardo, BAE Systems) and for the entire European Defense Technological and Industrial Base (EDTIB).

For investors, these trajectories represent a major structural argument: defense budgets are multi-year political commitments that are difficult to reverse, securing revenue visibility for both listed and unlisted players in the sector for 5 to 10 years.

Historical performance reflects this turnaround. The iShares US Aerospace & Defense ETF (ITA) delivered an annualized performance exceeding 25% over 2022-2025. European stocks have outperformed even more strongly: Rheinmetall's share price multiplied by 7, Thales by 3, and Dassault Aviation by 2.5.

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Key players in the sector

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The European defense industry is estimated to generate approximately 110 billion euros in revenue in 2024. The main listed players in Europe are Thales, Dassault Aviation, Airbus, Safran (France), Leonardo (Italy), Rheinmetall, MTU Aero Engines, Hensoldt (Germany), BAE Systems (United Kingdom) and Saab (Sweden). In the United States, the military-industrial complex is dominated by Lockheed Martin, RTX, Northrop Grumman, General Dynamics and Boeing Defense.

In France, the Defense Industrial and Technological Base (BITD) brings together nearly 4,000 companies, a majority of which are French SMEs and mid-caps, forming the productive fabric of national sovereignty. These players act as subcontractors for major contractors in strategic activities: embedded electronics, optronics, composite materials, propulsion, ammunition. Several mid-caps within the BITD are preparing their IPOs to finance their growth and meet the increase in public orders, which opens up new opportunities for savers and individual investors wishing to access this industrial base.

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How to invest in defense funds?

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Aerospace and Defense ETFs

ETFs offer the simplest and most liquid way to invest. The main ETFs available are:

• iShares US Aerospace & Defense ETF (ITA) : global benchmark, approximately $13 billion in assets under management, primarily US exposure. Fees 0.40%.
• VanEck Defense ETF (DFEN) : global exposure including Europe and Israel. Fees 0.55%.
• HANetf Future of Defence ETF (NATO) : NATO-focused, launched in 2023. Fees 0.49%.
• Amundi MSCI Europe Aerospace & Defense ETF : European version eligible for PEA (Equity Savings Plan).

Entry ticket: a few tens of euros per share, accessible via a securities account or PEA for European versions.

Deep Tech Private Equity and Venture Capital

The most dynamic segment remains venture capital and private equity in military deep tech: drones, military AI, cybersecurity, space systems. Many European startups are raising tens of millions of euros, and some specialized funds (NATO Innovation Fund, national sovereign funds) support these innovations.

Historically reserved for institutional investors, FPCIs (Fonds Professionnels de Capital Investissement) focused on industrial deep tech are becoming accessible to individuals via specialized platforms like Fundora, which pool subscriptions within FPCI/SPV structures. Management is provided under mandate by Kyoseil Asset Management, an asset management company approved by theAMF.

Direct Investment

For investors who want to manage their exposure, direct investment in defense stocks remains possible via a securities account or a PEA for European stocks. Concentrating on a maximum of 3 to 5 stocks is risky but can generate superior returns.

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Tax Wrappers, Risks, and ESG Framework

Suitable Investment Wrappers : French equity savings plans (PEA and PEA-PME) for European stocks and ETFs (tax-exempt after 5 years), life insurance for defense-related unit-linked funds, and standard brokerage accounts for US ETFs like ITA. The French retirement savings plan (PER) can also hold defense funds in unit-linked accounts.

Risks to Consider : geopolitical volatility (ceasefire announcements can trigger corrections), reliance on government contracts (70 to 90% of revenue), high valuations after 3 years of strong growth (P/E ratios often above 25-30), and currency risk for US ETFs.

ESG and Defense : Historically excluded from ESG funds, the conventional defense sector is gradually being reintegrated into sustainable criteria since 2024-2025, with the exception of controversial weapons (mines, biological, chemical, nuclear weapons). The European taxonomy and the French SRI label are evolving their criteria to incorporate the sovereignty dimension.

How to Build Your Defense Allocation

Defense remains a thematic exposure: it should not replace a diversified portfolio but complement it. Alongside thematic strategies, private debt funds bring a generic unlisted diversification building block, with returns of 7 to 12% per year and regular coupons. For a dynamic profile, an allocation of 5 to 15% of the overall portfolio to the defense sector is consistent. For a balanced profile, 3 to 8% is sufficient to capture the momentum without over-concentrating sector risk.

Geographical distribution is another key parameter. US stocks (Lockheed, RTX, Northrop) offer superior stability and liquidity, driven by the world's largest military budget. European stocks (Thales, Rheinmetall, Leonardo) benefit from the regional rearmament context with even more pronounced growth multiples. A 50/50 mix between the two regions allows capturing both dynamics.

Regarding investment vehicles, the most effective combination for an individual investor involves a broad defense ETF (such as ITA or NATO) for the core allocation, complemented by 1 or 2 direct stock holdings (for example, Thales via a PEA). For dynamic profiles, a complementary private equity allocation in military deep tech allows seeking returns uncorrelated with listed markets.

Defense cycles are long: armament programs span 10 to 20 years. An investor wishing to capture this dynamic must commit to a minimum holding period of 5 to 10 years.

Investing in Defense via Fundora

Fundora and Kyoseil Asset Management, an asset management company approved by the AMF, make private equity and venture capital strategies accessible to individual investors, which may include exposure to military deep tech and European industrial sovereignty. Access is provided via FPCI (Professional Private Equity Funds) and SPV structures that pool subscriptions from multiple individual investors.

The offering covers the main private equity strategies: venture capital (deep tech startups, drones, cybersecurity, military AI), growth equity, buyout capital, secondary, and private debt. This approach complements listed defense ETFs: it provides exposure to unlisted companies not accessible via traditional ETFs. The trade-off is illiquidity, with capital locked in for 5 to 10 years.

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FAQ

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What is the best defense ETF?

The best ETF depends on the desired geographical scope. The iShares US Aerospace & Defense ETF (ITA) is the benchmark in the US market. The VanEck Defense ETF (DFEN) offers global exposure. The HANetf Future of Defence ETF (NATO) covers NATO stocks. For European investors seeking PEA eligibility, the Amundi MSCI Europe Aerospace & Defense ETF is a good entry point. Fees range between 0.40% and 0.55% depending on the providers.

Is it possible to invest €500 in defense?

Yes. Defense ETFs allow you to buy shares starting from a few tens of euros in a securities account or a PEA. Multi-support life insurance also accepts unit-linked funds in the sector. Private equity in military deep tech historically involves higher entry tickets but is becoming accessible to individual investors via Fundora.

Are defense funds a good investment?

Between 2022 and 2025, defense funds delivered exceptional returns (over 20% annualized), driven by European rearmament. In the long term (10 to 15 years), the sector shows returns similar to the global equity market (8 to 10% annualized) with higher volatility linked to geopolitical cycles. Defense funds can represent a suitable allocation of 5 to 15% of a portfolio for dynamic investors.

Are defense funds ethical?

The debate is evolving. Historically excluded from ESG criteria, conventional defense funds (excluding controversial weapons) are gradually being reintegrated into responsible allocations since 2024-2025. The European taxonomy and the French SRI label are evolving their criteria to incorporate the dimension of sovereignty and the protection of democracies.

Should you invest in French or US defense?

Both markets offer different profiles. US defense (Lockheed Martin, RTX, Northrop Grumman) benefits from a colossal military budget (over 850 billion dollars per year), high liquidity, and historically high valuations. French defense (Thales, Dassault Aviation, Safran) directly benefits from the Military Programming Law and the dynamic of European sovereignty. French stocks are also eligible for the PEA, which gives them a decisive tax advantage. An investor can combine both to capture both dynamics.

What are the growth sectors in defense for 2026?

Four areas are attracting the most investment and strongest growth: cybersecurity and cyber defense, which are becoming strategic priorities for all states; drones and autonomous systems (land, air, naval), driven by lessons learned from the Ukrainian conflict; military artificial intelligence, applied to reconnaissance, surveillance, and decision-making; and defense space, with nano-satellites, electronic warfare, and secure communication systems. These sub-sectors are particularly well-represented in venture capital and military deep tech.

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