On December 15, 2025, the defense sector experienced a notable pullback when President Zelenskyy signaled Ukraine’s readiness to abandon its NATO membership pursuit in favor of alternative security arrangements. While this development fueled optimism around peace negotiations, it triggered immediate sell-offs across aerospace and defense equities, particularly European-listed names. However, savvy investors recognize this market reaction as a classic opportunity to build positions in diversified defense exchange-traded funds—vehicles that provide broad exposure to the structural long-term tailwinds reshaping global military spending patterns.
Why the Sector Remains Structurally Sound Despite Near-Term Volatility
The recent correction in defense equities—affecting major players like Rheinmetall (RNMBY), Leonardo (DRS), and Saab (SAABY)—reflects market sentiment oscillating on geopolitical headlines rather than fundamental business deterioration. Defense contractors’ revenue streams are anchored not in any single conflict, but in multi-year government contracts and sustained budgetary commitments across NATO and allied nations.
Ukraine’s pivot from formal NATO membership toward NATO-style security guarantees actually reinforces the long-term demand thesis. European nations will need to serve as permanent military guarantors, requiring continuous investment in readiness and equipment—a burden that transcends the current conflict timeline. This structural demand is evidenced by NATO’s combined military expenditure reaching $1.45 trillion in 2024, marking a 9.6% increase year-over-year and representing the largest annual surge since 2014.
Beyond Europe, concurrent security challenges across the Indo-Pacific and Middle East are driving Japan, South Korea, and Gulf states to expand defense capabilities independently. This geographical diversification of demand protects contractors like Lockheed Martin (LMT), RTX Corporation (RTX), and Northrop Grumman (NOC) from overreliance on any single theater or policy shift.
The Case for Ukraine-Related Defense ETF Exposure
Rather than picking individual defense stocks vulnerable to idiosyncratic drawdowns, investors seeking exposure to escalating global military budgets should consider diversified defense ETFs. These funds provide sector-wide participation in the Ukraine conflict aftermath and broader geopolitical realignment without concentrating risk in single names.
Broad U.S. Defense Exposure Options
The iShares U.S. Aerospace & Defense ETF (ITA) manages $12.96 billion in assets across 41 U.S. manufacturers of commercial and military aircraft and defense systems. Its portfolio weighting includes GE Aerospace (21.65%), RTX (16.17%), and Boeing (BA, 8.04%). ITA’s year-to-date return stands at 50.2%, with an expense ratio of 38 basis points.
State Street SPDR S&P Aerospace & Defense ETF (XAR) operates with $4.75 billion under management, offering exposure to 40 large, mid, and small-cap names. Top holdings feature Rocket Lab (RKLB, 4.03%), Karman Holdings (KRMN, 3.78%), and ATI Inc. (ATI, 3.66%). XAR has delivered 48.3% year-to-date performance with a 35 basis point fee structure.
Invesco Aerospace & Defense ETF (PPA) holds $6.95 billion in market value across 59 companies engaged in U.S. defense and aerospace operations. RTX (8.71%), BA (8.16%), and GE (7.85%) comprise the top three positions. The fund has appreciated 38.6% year-to-date at a 58 basis point expense ratio.
European Defense Exposure
For investors seeking pure-play European exposure amid Ukraine-related defense buildups, Select STOXX Europe Aerospace & Defense ETF (EUAD) provides targeted positioning. With $1.04 billion in assets, EUAD tracks 13 European defense and aerospace companies, including Airbus (EADSY, 19.05%), Rolls-Royce (RYCEY, 18.42%), and Safran (SAFRY, 18.25%). EUAD leads performance metrics at 72.7% year-to-date returns, commanding a 50 basis point fee.
Strategic Considerations for Portfolio Builders
The December correction represents a temporary disconnect between short-term sentiment and enduring structural demand. Ukraine’s movement away from formal NATO membership does not diminish the military support requirements that European nations must now provide unilaterally. Meanwhile, the conflict has permanently altered global security calculations, compelling nations worldwide to reassess defense spending priorities.
Investors selecting among these Ukraine ETF alternatives should weigh their preference for pure-play U.S. defense exposure versus balanced geographic diversification or specific European positioning. Each fund offers different fee structures and concentration profiles suitable for different risk tolerances and time horizons.
Geopolitical Shifts Create Entry Point in Ukraine-Linked Defense ETFs
On December 15, 2025, the defense sector experienced a notable pullback when President Zelenskyy signaled Ukraine’s readiness to abandon its NATO membership pursuit in favor of alternative security arrangements. While this development fueled optimism around peace negotiations, it triggered immediate sell-offs across aerospace and defense equities, particularly European-listed names. However, savvy investors recognize this market reaction as a classic opportunity to build positions in diversified defense exchange-traded funds—vehicles that provide broad exposure to the structural long-term tailwinds reshaping global military spending patterns.
Why the Sector Remains Structurally Sound Despite Near-Term Volatility
The recent correction in defense equities—affecting major players like Rheinmetall (RNMBY), Leonardo (DRS), and Saab (SAABY)—reflects market sentiment oscillating on geopolitical headlines rather than fundamental business deterioration. Defense contractors’ revenue streams are anchored not in any single conflict, but in multi-year government contracts and sustained budgetary commitments across NATO and allied nations.
Ukraine’s pivot from formal NATO membership toward NATO-style security guarantees actually reinforces the long-term demand thesis. European nations will need to serve as permanent military guarantors, requiring continuous investment in readiness and equipment—a burden that transcends the current conflict timeline. This structural demand is evidenced by NATO’s combined military expenditure reaching $1.45 trillion in 2024, marking a 9.6% increase year-over-year and representing the largest annual surge since 2014.
Beyond Europe, concurrent security challenges across the Indo-Pacific and Middle East are driving Japan, South Korea, and Gulf states to expand defense capabilities independently. This geographical diversification of demand protects contractors like Lockheed Martin (LMT), RTX Corporation (RTX), and Northrop Grumman (NOC) from overreliance on any single theater or policy shift.
The Case for Ukraine-Related Defense ETF Exposure
Rather than picking individual defense stocks vulnerable to idiosyncratic drawdowns, investors seeking exposure to escalating global military budgets should consider diversified defense ETFs. These funds provide sector-wide participation in the Ukraine conflict aftermath and broader geopolitical realignment without concentrating risk in single names.
Broad U.S. Defense Exposure Options
The iShares U.S. Aerospace & Defense ETF (ITA) manages $12.96 billion in assets across 41 U.S. manufacturers of commercial and military aircraft and defense systems. Its portfolio weighting includes GE Aerospace (21.65%), RTX (16.17%), and Boeing (BA, 8.04%). ITA’s year-to-date return stands at 50.2%, with an expense ratio of 38 basis points.
State Street SPDR S&P Aerospace & Defense ETF (XAR) operates with $4.75 billion under management, offering exposure to 40 large, mid, and small-cap names. Top holdings feature Rocket Lab (RKLB, 4.03%), Karman Holdings (KRMN, 3.78%), and ATI Inc. (ATI, 3.66%). XAR has delivered 48.3% year-to-date performance with a 35 basis point fee structure.
Invesco Aerospace & Defense ETF (PPA) holds $6.95 billion in market value across 59 companies engaged in U.S. defense and aerospace operations. RTX (8.71%), BA (8.16%), and GE (7.85%) comprise the top three positions. The fund has appreciated 38.6% year-to-date at a 58 basis point expense ratio.
European Defense Exposure
For investors seeking pure-play European exposure amid Ukraine-related defense buildups, Select STOXX Europe Aerospace & Defense ETF (EUAD) provides targeted positioning. With $1.04 billion in assets, EUAD tracks 13 European defense and aerospace companies, including Airbus (EADSY, 19.05%), Rolls-Royce (RYCEY, 18.42%), and Safran (SAFRY, 18.25%). EUAD leads performance metrics at 72.7% year-to-date returns, commanding a 50 basis point fee.
Strategic Considerations for Portfolio Builders
The December correction represents a temporary disconnect between short-term sentiment and enduring structural demand. Ukraine’s movement away from formal NATO membership does not diminish the military support requirements that European nations must now provide unilaterally. Meanwhile, the conflict has permanently altered global security calculations, compelling nations worldwide to reassess defense spending priorities.
Investors selecting among these Ukraine ETF alternatives should weigh their preference for pure-play U.S. defense exposure versus balanced geographic diversification or specific European positioning. Each fund offers different fee structures and concentration profiles suitable for different risk tolerances and time horizons.