Aussie investors to get first-ever defence industry ETF

VanEck is set to launch Australia’s first global defence ETF (DFND), offering exposure to some of the world’s leading defence contractors, including large-scale cybersecurity firms and defence-relevant service providers.

The fund, which goes live on 12 September on the Australian Securities Exchange (ASX), will offer exposure to a number of tech-focused defence contracting businesses, covering the aerospace, communications, security software and training sectors.

VanEck, which boasts an extensive global ETF offering, pioneered the global defence fund in Europe early last year. The Europe-based fund currently boasts year-to-date returns of 29.0%, as at 6 September 2024, and total assets of US$1.0 billion (AU$1.5 billion).

Among its largest holdings include data analytics firm Palantir, defence tech developers Leidos and Thales, and military intelligence contractor Booz Allen.

VanEck chief executive and managing director for Asia Pacific, Arian Neiron, said its Europe-based fund has attracted substantial flows since its 2023 launch, providing impetus to expand the offering to Australia.

“Given strong demand locally and the consistent and identifiable trends supportive of the sector’s growth, we decided to bring this investment strategy to the ASX,” he said.

“Unfortunately, the world has changed since the days of celebrating the peace dividend. Where countries used to extol the economic benefits of reduced defence spending, they’re ramping up military expenditure. Investors are adapting to the likely reality that this will keep rising in the years ahead.”

“Global defence companies benefit from a unique investment complex. Demand is driven by structural growth drivers and cashflows are typically secured by long-term government mandates. This can be a strategic allocation for investors, providing a different form of equity risk management.

Global military expenditure ballooned by 7%, a 2023 report by the Stockholm International Peace Research Institute (SIPRI) revealed, exceeding US$2.43 trillion – bigger than the GDPs of Brazil, Italy and Canada.

“This is the steepest annual rise since 2009, reflecting an increased focus on national security as international peacekeeping has deteriorated. The industry is expected to grow nearly 40% to US$3.1 trillion by 2030,” VanEck wrote.

With the launch of the DFND this week, VanEck now counts 43 ETF listings on the ASX.