With the S&P/ASX 200 Index (ASX: XJO) flat for the year, ASX exchange-traded fund (ETF) investors may find themselves looking beyond index-based ETFs to boost their returns.
For the year to date, both the BetaShares Australia 200 ETF (ASX: A200) and the Vanguard Australian Shares Index ETF (ASX: VAS), which track the ASX 200 Index, have risen just 1%.
The journey has not been linear. Rather, the market experienced substantial volatility in April, before recovering sharply over the past two weeks.
ASX ETF investors might be hunting for less volatile investments that offer a better risk-reward profile.
One thematic ASX ETF stands out from the pack. What is it?
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Vaneck Global Defence ETF (ASX: DFND)
Australia's first defence-focused ETF, Vaneck Global Defence ETF, has a lot going for it. For a management fee of 0.65%, investors gain exposure to 28 global companies involved in aerospace & defence, research & consulting, application software, and electronic equipment & instruments. It excludes companies involved in controversial weapons like anti-personnel mines, biological and chemical weapons, cluster munitions, and white phosphorus.
The fund is relatively geographically diversified. As of 30 April 2025, 54% of investments were listed in the US, 11% in France, 8% in South Korea, 8% in Italy, 6% in Sweden, and the remainder across various countries.
A consistent market-beater
Since listing in September 2024, DFND has consistently beaten the market. Since September 2024, it has increased by 65%, while the ASX 200 Index is just 2% higher. Over the past month, the DFND ETF has risen 10%, while the ASX 200 Index is 8% higher. For the year to date, the DFND ETF is up 40%, far outpacing the index, which is flat.
What has driven this performance?
This ETF has several headwinds that could support ongoing strong performance.
It benefits from mandated government defence expenditures, which could increase. Since 2014, NATO allies have committed to allocating 2% of their national gross domestic product (GDP) to defence spending. According to VanEck, they agreed that at least 20% of defence spending should be dedicated to new equipment. Companies in the DFND ETF are likely to be direct beneficiaries of these targets. Given the heightened geopolitical conflict over the past few years, it may be an opportune time to invest in these industries.
Other defence-focused ASX ETFs
While DFND may have been the first ASX defence-focused ETF to list, it's not the only one on the market. Shortly after the DFND ETF launched, Global X listed the Global X Defence Tech ETF (ASX: DTEC) in late September. A couple of weeks later, Betashares unveiled the BetaShares Global Defence ETF (ASX: ARMR). Both ETFs have also enjoyed strong performance this year, rising 39% and 29%, respectively.
Investors interested in thematic ETFs may be interested in these three options.
