ASX defence shares may be the next big opportunity for investors.
At the recent ASX Investor Day in Sydney, many analysts raised defence and the significant tailwinds behind the industry today.
Analysts said many countries were looking to raise their defence spending in light of the US Government's 'America First' policy.
Increased spending would mean higher investment in companies providing land, sea, aerospace, and technology products and services.
US Defence Secretary Pete Hegseth has called for NATO allies to increase their defence spending to 5% of gross domestic product (GDP).
The US administration has made it plain that America is growing weary of its traditional role as the world's primary defender.
Global governments are increasingly worried that the US will not come to their aid during a conflict.
This is especially concerning given the rising influence of China and its increasingly strong relationship with Russia, in particular.
We learned this week that the US Government is reviewing AUKUS amid Hegseth's request for Australia to increase its defence budget.
In this article, we profile one share and two exchange-traded funds (ETFs) that tap into the rising defence investment theme on the ASX.
Our ASX defence share is decades old, but the ETFs listed only last year — providing evidence of investors' rising interest in defence.
Austal Ltd (ASX: ASB)
Austal is an Australian defence shipbuilder and services provider that commenced operations in Perth in 1988.
The company listed on the ASX in 1998.
The Austal share price hit a new all-time high of $6.38 today amid no company announcements.
Austal builds ships for the Australian Navy, US Navy, and other clients. It owns shipbuilding yards in the US, Australia, Vietnam, and the Philippines, along with service centres around the globe.
Over the past five years, the Austal share price has risen by 95%. However, the bulk of that growth has occurred recently.
Over the past 12 months, this ASX defence share has outperformed with 167% share price growth.
This week, news that a South Korean suitor is seeking to raise its stake in Austal excited the market and propelled the share price 8.4%.
As a result of its higher share price, Austal will enter the benchmark S&P/ASX 200 Index (ASX: XJO) in the June quarter rebalance.
Macquarie has an outperform rating on this ASX defence share.
Austal is trading well above the broker's latest 12-month share price target of $4.75.
VanEck Global Defence ETF (ASX: DFND)
The VanEck Global Defence ETF is trading at $35.37 on Friday, up 4.34%.
The DFND ETF began trading in September last year.
This ASX defence ETF hit a record high of $35.39 per share earlier today.
The DFND ETF seeks to track the MarketVector Global Defence Industry (AUD) Index before fees.
There are 29 stocks in this ASX ETF.
About 52.2% of holdings are US shares, 10.6% are in France, 8.4% in Italy, 8% in South Korea, and 6.4% in Sweden.
In terms of industry sectors, 68.8% of this ASX ETF is in aerospace and defence, 19.6% is in professional services, and 10.3% is in software.
The ETF's top five holdings are Palantir Technologies Inc (NYSE: PLTR) shares at 10.2%, Leonardo SpA (BIT: LDO) at 8.4%, Thales SA (EPA: HO) at 7.6%, RTX Corp (NYSE: RTX) at 6.9%, and Hanwha Aerospace Co Ltd (KRX: 012450) at 6.5%.
(Hanwha Aerospace is a division of the Fortune 500 diversified company that is pursuing Austal.)
Since its inception in September 2024, the ETF has delivered a total return of 68.22%.
The ETF pays distributions once per year and charges a management fee of 0.65% per annum.
Betashares Global Defence ETF (ASX: ARMR)
The Betashares Global Defence ETF is trading at $23.80 on Friday, up 4.02%.
The ARMR ETF began trading in October last year.
This ASX defence ETF also hit a record high today, surging to $23.92 per share in earlier trading.
The ARMR ETF seeks to track the VettaFi Global Defence Leaders Index before fees.
ARMR provides exposure to up to 60 companies that derive more than 50% of their revenue from the development and manufacturing of military and defence equipment or technology.
Roughly 57.5% of the portfolio is in US shares, 11.3% in Germany, 10.8% in France, 9.1% in Britain, and 3.3% in South Korea.
Sector-wise, 82.7% of the ETF is in aerospace and defence, 9.7% in application software, and 6.9% in research and consulting services.
The ETF's top five holdings are Rheinmetall AG (ETR: RHM) shares at 10%, Palantir Technologies at 9.7%, BAE Systems PLC (LSE: BA) at 7.9%, Safran SA (EPA: SAF) at 7.3%, and Raytheon Technologies Corp (NYSE: RTX) at 7.1%.
Since its inception in October 2024, this ASX defence ETF has delivered a total return of 52.12%.
The ETF pays distributions at least annually and has a yearly management fee of 0.55%.
