KEY POINTS
- The Global X Defense Tech ETF (SHLD) holds $8.6 billion in assets, has gained roughly 75% over the past year, and absorbed $1.61 billion in net inflows over the past three months.
- Global defense spending hit $2.63 trillion in 2025 and is on pace to top $3.6 trillion by 2030, with NATO European allies up 20% year over year.
- The next catalyst is the NATO summit scheduled for late June and the Pentagon's fiscal 2027 budget submission, which lands at the end of May.
The Global X Defense Tech ETF (SHLD) has crossed $8.6 billion in assets under management, with $1.61 billion in net inflows over the past three months, $3.18 billion over six months, and $5.91 billion over the trailing year. The fund has returned roughly 75% over the past 12 months and is up about 15% year to date, outperforming both the S&P 500 and the broader iShares U.S. Aerospace and Defense ETF (ITA) over each measurement window.
The performance reflects a structural reset in global defense spending that has been building since mid-2024. Global military spending hit $2.63 trillion in 2025, up from $2.48 trillion in 2024, with NATO European allies and Canada increasing combined spending by 20% year over year. The trend line, as multiple sources have detailed, now points to global defense outlays topping $3.6 trillion by 2030, a roughly 33% increase from 2024 levels.
Why SHLD Is Outperforming Its Peers
SHLD's outperformance against legacy defense ETFs traces directly to its construction. The fund mixes traditional U.S. primes, including Lockheed Martin, RTX, and Northrop Grumman, with European defense manufacturers such as BAE Systems, Rheinmetall, and Leonardo, plus a layer of next-generation defense technology names tied to drones, electronic warfare, and counter-UAS systems. That basket captures both the legacy fiscal 2026 budget allocations and the European rearmament wave that has lifted Rheinmetall and BAE shares more than 80% over the past 12 months.
The expense ratio is 0.5%, slightly higher than the 0.39% for the iShares Aerospace and Defense ETF (ITA), but the active sector curation has been worth the basis points. SHLD's three-month flow of $1.61 billion compares with combined inflows of less than $400 million across ITA and the Invesco Aerospace and Defense ETF (PPA) over the same window, a divergence that suggests institutional allocators are deliberately choosing the broader, more international exposure rather than the legacy U.S.-only construction.
The Catalyst Calendar
The next four weeks contain the most concentrated event stack the defense complex has seen this year. The Pentagon's fiscal 2027 budget submission lands the last week of May, with consensus expectations calling for a topline above $920 billion, a 5% nominal increase from fiscal 2026. The NATO summit in The Hague is scheduled for late June, where the alliance is expected to formalize a new commitment to defense spending of 3% of GDP, up from the current 2% benchmark, with several European members already on track to exceed even the new threshold.
Earnings season runs in parallel. Lockheed Martin reports July 22, but the May 20 quarterly print from L3Harris and the May 8 update from Boeing's defense segment provide intermediate reads on backlog growth and program execution. Drone-focused names within SHLD, including AeroVironment and Kratos, report through mid-May and offer the cleanest look at the asymmetric warfare procurement trend that has been the fastest-growing budget line item in both U.S. and European allocations.
Risk Underneath the Trend
The risks are real but bounded. A ceasefire in any of the three active major conflicts, particularly the Ukraine war, would compress sentiment in the European defense names that have driven much of SHLD's outperformance. Budget continuity in the U.S. depends on the appropriations process, and a continuing resolution rather than full-year fiscal 2027 appropriations would delay program starts and weigh on near-term backlog conversion. Currency exposure is the third risk: roughly 28% of SHLD's holdings are denominated in euros, and a meaningful dollar strengthening cycle would clip returns on the European cohort.
The valuation argument requires more nuance than the rally suggests. The fund's underlying basket trades at roughly 22 times forward earnings, above the five-year average of 17 times but well below the multiples of the AI infrastructure complex. Free cash flow growth across the holdings has run above 12% annualized over the past two years, and backlog-to-revenue ratios sit at multi-decade highs across both U.S. primes and European peers. The trade is not cheap, but it is supported by a fundamental case that does not require any single geopolitical event to remain intact.
For traders, the immediate setup is clear. A clean Pentagon budget submission with topline above $925 billion and a NATO summit communique committing to a 3% GDP threshold would push SHLD through technical resistance at $80 and reopen a path to $90. Anything less, and the year-to-date 15% gain becomes the level the fund needs to defend through the summer. The signal to watch is the European cohort: when Rheinmetall and BAE confirm fresh highs alongside the U.S. primes, the rotation has the structural support to continue. When they do not, the fund's outperformance over ITA narrows, and the trade becomes a bet on U.S. budget cycles rather than a global defense reset.
