US equities recently peaked when President Trump rang the bell at the New York Stock Exchange on December 12 and have had a torrid start to 2025, but the defence sector is proving relatively defensive. A new actively managed ETF, U.S. Global Technology and Aerospace & Defense ETF (ticker: WAR) run by U.S. Global Investors is up about 1% in the first ten days of the year, while the S&P 500 and Nasdaq 100 are down over 2% - and are about 5% and 7% below the highs hit in early December.
President Elect Trump is calling for European countries to more than double their defence spending to 5% of GDP. Thus far Poland is the only country close to this level with a spend near 4%. The average in Europe is 1.5%, which even falls short of NATO’s own 2% target! A few of Russia’s neighbours: Estonia, Finland, Lativia and Lithuania, are spending between 2% and 3%.
WAR is exposed to fighter jets, tanks and missiles, but not in fact a pure play defence ETF. It invests across Aerospace & Defense, Semiconductors, Cybersecurity, Data Centers, Electronic Warfare and Homeland Security. Some of its holdings span several of these activities.
The largest, Leidos Holdings, is active in defence, aviation, IT and biomedical research. Second up is Booz Allen Hamilton, which is involved in civil, defence and national security. Third biggest is aerospace materials maker Hexcel.
The top ten also includes three well known semiconductor chip makers: Applied Materials, NVIDIA, and Taiwan Semiconductor. Further down the list a couple of other MAG7 names, Alphabet and Microsoft, can be found.
The portfolio is US-dominated, but includes UK listed Cohort, Germany’s Rheinmetall AG, Israel’s Cognyte Software and France’s Dassault Aviation.
This is a transparent active ETF, disclosing all holdings on its website. The expense ratio of 0.60% is a bit higher than on index tracking defence ETFs, ranging from Invesco Defence Innovation ETF charging 0.35% to HANetf Future of Defence ETF at 0.49%, Global X Defence Tech ETF at 0.50% and VanEck Defence UCITS ETF at 0.55%.
Their holdings overlaps with WAR are pretty low: looking at the top ten, the Invesco product also has Hexcel; HanETF also holds Rheinmetall; Global X has Rheinmetall and Leidos while VanEck has Booz Allen and Leidos. This is actually not unusual: generally we notice few common holdings in thematic ETFs with the same or similar “headline” names, whether they are actively or passively managed.
Time will tell if the active management from U.S. Global Investors beats the index approach in the defence related sector ETF space.