NATO Defense ETF in 2026: Returns, Costs, Alternatives

Why a NATO-focused defence ETF is back in focus

Aerospace and defence stocks have moved from a niche allocation to a mainstream “capex cycle” trade, as NATO and allied governments raise spending targets and accelerate procurement. In that context, the Themes Transatlantic Defense ETF, traded under the ticker NATO, is positioned as a single-ticker way to access Western prime contractors and key suppliers across the alliance.

The provided material frames the current environment as the strongest sustained Western defence capex cycle “in a generation,” pointing to both higher European outlays and the scale of the US defence budget. For investors, the practical question is no longer whether spending is rising, but which ETF structure best matches the exposure they want: US primes, European primes, or a blended portfolio.

What the NATO ETF is and what it holds

NATO is described as a “transatlantic defense ETF.” One description says the fund sits on roughly $1.093bn in assets and tracks an index of 27 aerospace and defense companies headquartered in NATO member countries. Another section separately states that the “NATO ETF (NATO) quadrupled assets to $1.06bn,” highlighting that the material includes more than one asset figure.

The ETF is also described as concentrated. In one excerpt, RTX, GE Aerospace, and Boeing together make up nearly 25% of assets. That concentration is relevant because it can amplify both upside and single-stock risk when defence budgets or program timelines shift.

The spending backdrop: higher targets and record totals

Several spending datapoints in the material underline why defence-linked ETFs have rallied:

• Global military expenditure is cited at $1,700bn in 2024, described as the highest level ever recorded.
• Global defence spending is also cited at $1,630bn in 2025, up from $1,480bn in 2024.
• NATO members are said to have increased defence spending by 8.9% in 2024 versus the prior year.
• In 2025, NATO’s European allies and Canada are described as increasing defence spending by 20% year-on-year, with “total alliance defence expenditures” topping $1,400bn, including a $174bn injection from European members and Canada.
• One segment notes a June 2025 summit commitment where allies agreed to target 5% of GDP by 2035, replacing the older 2% guideline, with analysts estimating it could add $1,000bn per year to NATO budgets when fully implemented.

Separately, the US defence budget is referenced as “over $100bn annually, ” and another line states Congress approved $100.6bn for defence spending.

NATO ETF performance: strong gains, multiple figures cited

The material cites several performance figures for NATO, reflecting different time windows:

• NATO returned 67% in its first 12 months.
• Year-to-date in 2026, it is cited as up 12%.
• Another excerpt says the Themes Transatlantic Defense ETF “surged 65% over the past year” and is up 17.5% over the past month.
• A separate line states the fund “captur[ed] 74% growth in 2025,” alongside the claim that assets quadrupled.

While these numbers do not all refer to the same measurement period, the common thread is that the fund has been associated with outsized returns during the recent rearmament-driven rally.

What has been driving returns, according to the material

Three specific drivers are called out:

1. Record orders for the F-35 program, which supports major US primes and key subsystem suppliers.
2. Accelerated European missile defence procurement, which tends to flow to both European primes and US exporters via foreign military sales.
3. A rerating of European primes that had been “trading at deep discounts to US peers,” suggesting valuation convergence contributed alongside earnings and order momentum.

These points matter for ETF selection because they cut across regions. A US-only fund can still benefit from European procurement when platforms and interceptors are sourced from US contractors, while a Europe-only fund can be more directly tied to domestic EU rearmament budgets.

Who the NATO ETF is for (and who it is not)

The material is explicit about suitability. NATO is positioned for investors who want:

• A “clean single ticker bet” on the Western defence capex cycle
• European diversification rather than pure US exposure
• And who accept a “small premium” versus owning ITA directly

It also states NATO “is not the right fund” for someone who already owns ITA, SHLD, or PPA, implying that overlap across defence ETFs can be meaningful and may reduce the diversification benefit.

Comparing NATO with ITA, EUAD, MISL, SHLD and XAR

The broader ETF menu in the material spans US primes, European primes, and more specialized munitions or equal-weight approaches:

• iShares U.S. Aerospace & Defense ETF (ITA) is repeatedly described as the largest and most liquid. One excerpt cites $13.5bn in assets and notes concentration with 19% in GE Aerospace and 16% in RTX. Another excerpt describes ITA as a broader alternative with $11bn in assets and a 0.40% expense ratio, plus a track record back to May 2006.
• Select STOXX Europe Aerospace & Defense ETF (EUAD) is positioned as the cleanest way to own contractors tied to EU rearmament budgets, and it is said to own names such as Rheinmetall, BAE Systems, and Leonardo.
• First Trust Indxx Aerospace & Defense ETF (MISL) is described as tilting toward missiles, munitions, and weapons systems, focused on the supply gap in 155mm shells and precision-guided munitions.
• Global X Defense Tech ETF (SHLD) is described as holding $1.6bn in assets and mixing US and European contractors, including a 6% position in Palantir Technologies.
• SPDR S&P Aerospace and Defense ETF (XAR) is described as equal-weight across 42 holdings and cited as returning 69% over the past year in one excerpt, and about 68% over the past year in another. It is also cited with an expense ratio of 0.35%.

Key figures mentioned across the ETFs

Market impact: why structure and overlap matter

The material describes a “defensive rotation” in 2025 that supported aerospace and defence ETFs, with ITA cited as gaining 15.3% in six months in that context. At the same time, Europe’s budget push is described as directly filling order books, which has helped European primes rerate.

For investors, the main portfolio trade-off implied by the text is simplicity versus precision. NATO is framed as a blended exposure across NATO-member primes, while EUAD is framed as a more direct Europe rearmament allocation and ITA as a deep-liquidity US primes allocation. MISL and SHLD are framed as more thematic tilts within the broader capex cycle, and XAR as a diversified, equal-weight construction.

Analysis: reading the rally without overreaching

Across the excerpts, the case for the sector is rooted in hard spending totals and revised targets, not a single headline event. The cited jump to a 5% of GDP target by 2035 (from 2%) and the multi-trillion-dollar annual global spending base suggest a longer-duration procurement and replenishment story than prior cycles.

But the same material also flags a practical ETF issue: if an investor already owns large defence ETFs such as ITA, SHLD, or PPA, adding NATO may increase overlap more than diversification. And because NATO is described as paying a “small premium” versus ITA, costs and duplication become part of the decision.

Conclusion: a capex-cycle product with clear positioning

NATO is presented as a single-ticker way to express the Western defence capex cycle, blending US and European primes and benefiting from procurement acceleration cited across NATO members. The material ties recent performance to the F-35 order cycle, European missile defence procurement, and valuation rerating of European contractors.

The next signposts, based on the provided text, are the implementation path toward the 2035 spending target and the pace of budget follow-through after the recent step-up in global and alliance-wide defence totals.