The Vaneck Global Defence ETF (ASX: DFND) hit a record high of $36 during intraday trading on Wednesday.
Yesterday, the ASX exchange-traded fund (ETF) closed the session at $35.02, up 1.07% for the day.
Defence is the hottest new investment theme amid the US pressuring scores of Western nations to raise their defence budgets.
Amid a volatile new conflict in the Middle East, the US has made it clear that it wants nations to better prepare themselves.
That includes Australia, with the US pushing us to raise defence spending from 2.1% to 3.5% of gross domestic product (GDP).
The US also wants the 32 NATO nations to raise their defence spending to 5% of their GDP.
The NATO Secretary-General reckons that's a reasonable request given China and Russia's rapid build-up of defence capability.
Secretary-General Mark Rutte said NATO needs "a quantum leap in our collective defence" to keep up with its adversaries.
He'll be pushing for the 5% GDP commitment at the 2025 NATO Summit at The Hague on 24–25 June.
Meanwhile, the DFND ETF is benefiting from this increased focus on defence spending.
Image source: Getty Images
Introducing the DFND ETF…
Until now, defence spending has been rising quietly.
Now, it's front and centre in the media headlines and alerting investors to this new opportunity.
ASX defence shares like Austal Ltd (ASX: ASB) and Droneshield Ltd (ASX: DRO) have received a lot of attention from investors.
But for those investors who prefer ETFs, VanEck is way ahead of you.
VanEck launched the VanEck Global Defence ETF in September last year.
DFND ETF gives investors targeted exposure to global companies operating in the defence and military sector.
The ETF seeks to track the MarketVector Global Defence Industry (AUD) Index before fees.
The ETF currently invests in 29 stocks across multiple countries.
They are some of the largest global companies involved in aerospace and defence, research and consulting, application software, and electronic equipment and instruments.
The ETF provider says these types of companies are "typically under-represented in benchmarks".
This means if you want exposure, you can't rely on broad-based ETFs tracking major indices.
Instead, you have to look at individual companies or thematic ETFs.
What are you buying with the DFND ETF?
Geographically, the ETF is concentrated in developed markets, with US shares accounting for 52.23% of assets.
Next is France (10.57%), Italy (8.41%), South Korea (7.98%), and Sweden (6.35%).
Other countries include Israel, Singapore, the United Kingdom, and Germany.
The top five holdings are: AI and defence software firm Palantir Technologies Inc (NYSE: PLTR) 10.2%, Italian aerospace and defence group Leonardo SpA (BIT: LDO) 8.4%, French defence electronics specialist Thales SA (EPA: HO) 7.6%, US missile and aerospace giant RTX Corp (NYSE: RTX) 6.9%, and South Korean weapons manufacturer Hanwha Aerospace Co Ltd (KRX: 012450) 6.5%.
As stated, the DFND only began trading in September last year.
So far, it's outperforming the S&P 500 Index (SP: .INX) and the S&P/ASX 200 Index (ASX: XJO) by a ratio of more than 10:1.
Say you invested $10,000 in DFND ETF when it listed…
VanEck launched the DFND ETF on the ASX on 12 September. That day, it closed at $20 per unit.
So, let's say you invested $10,000 at that price. That would have bought you 500 units (for $10,000).
There's been an incredible capital gain of $15.02 per unit since then. That's a 75.1% return in less than a year.
By comparison, the S&P 500 has risen 6.88% and the ASX 200 has lifted 5.55% over that same period.
In dollar terms, that's a $7,510 gain for you. Therefore, your DFND ETF holding is now worth $17,510.
In terms of dividends (called 'distributions' with ETFs), DFND intends to pay a distribution annually.
At the time of writing, it has not yet paid a distribution.
There is a yearly management fee of 0.65%.
Another ASX defence ETF option is the Betashares Global Defence ETF (ASX: ARMR). Read about it here.
