Hot on the heals of VanEck launching the VanEck Global Defence ETF (DFND) this week, its top competitors BetaShares and Global X are launching similar products. These are:
BetaShares Global Defence ETF
Global X Defence Tech ETF
The Global X fund will be an Australian version of its successful US product of the same name, the NYSE-listed Global X Defence Tech ETF (SHLD), which now houses over US$500 million in assets. Like the VanEck fund with which it will compete, the new Global X fund will self-index: tracking an index produced by parent company Mirae’s team out in India. The index is a modified market-cap weighted index of the top 50 pure-play defense technology companies from around the world. The Australia product, like the US product, will charge a 0.50% management fee.
The BetaShares fund will track a Solactive index, targeting the largest defence companies mostly in the Transatlantic. It too will be market weighted and target companies that make their revenue from producing weapons and other combat related technology and equipment.
That three near-identical ETFs are launching together in such quick succession is irregular. Global X, VanEck and BetaShares are known for their rivalry. But VanEck previously positioned itself more as a smart beta provider—at a remove from this type of product. In recent years however, the firm has started migrating more towards thematics, perhaps wishing to distance itself from iShares, which has gotten more active in its home turf of Australian smart beta.
The three simultaneous launches will doubtless lead to price competition. Global X is coming in 15 basis point under VanEck, which currently charges 0.65%. There’s no doubt that BetaShares, which is set to launch last, as we understand, will have to compete on fees too if it wishes to stand out in a crowded field.
Beyond that, one suspects that success here will turn largely on performance. Defence ETFs, at the end of the day, are just glorified GICS Industrials Sector trackers. Something near 90% of their holdings are drawn from this sector. And that’s no bad thing: the Industrial sector has been a silent winner, ranking as the second or third best performing sector year after year, not far behind technology. Yet issuers have been reluctant to build products here – perhaps thinking it unglamorous, perhaps fearing that weapons ETFs are anti-ESG.
As to how these ETFs will perform, we’ll have to wait and see.