One date completely changed the German view of defense stocks: February 24, 2022 - the day Russia attacked Ukraine. The war continues to have devastating consequences for the lives of the people there to this day. This should never be forgotten, especially since what follows is about a comparatively unimportant topic such as investing.
In fact, the war also had consequences for the way people in Germany thought about investing in defense companies. A new perspective soon took hold. While weapons manufacturers in the portfolio were previously viewed by most as a bad habit, many investors were now convinced that strong Western defense companies were absolutely needed in this new world situation. Of course, this change of attitude also has to do with a somewhat cynical peculiarity of the stock market: when particularly high profits are tempting, investors are always even more motivated.
With the enormous gains in Rheinmetall's share price, for example, many fund companies also developed a business interest in the topic and soon launched their own defense funds. The analysis house Scope has examined how worthwhile these funds are for investors. The study is owned by the F.A.S. exclusively. It has some exciting insights in store.
The largest ETF is not necessarily the best
One company was particularly quick to launch an index fund (ETF) that tracks the performance of important defense stocks: the provider Van Eck. The “Van Eck Defense” ETF was launched back in March 2023, into which investment money totaling more than six billion euros has currently flowed. This makes it by far the largest ETF for defense stocks in which German investors can invest.
The only problem is: As much as this was worthwhile for investors at the beginning, the performance has been weak recently. Over the year, the ETF was up just 0.6 percent at the end of July - at the time of the most recent data available for the study. This makes it one of the worst funds in comparison in 2026. The fees are also higher than many providers at 0.55 percent per year. Of course, investors should not overestimate short-term price fluctuations. But Scope analyst Andreas Bartels draws the conclusion: "Those who move quickly as a provider collect the most money. The performance in a later market phase is sometimes secondary." Investors learn from this not to blindly trust a fund with a large volume, but rather to take a closer look.
This also applies to a second point that the Scope experts discovered. There seems to be a great deal of consensus when it comes to stock selection, especially when it comes to funds and ETFs that focus purely on European defense stocks. Rheinmetall and Thales, a French military technology manufacturer, are without exception among the stocks with the most weight in these funds. This type of concentration can be problematic. For example, Rheinmetall's share price is significantly in the red this year, which weakens all funds that invest in the stock. And where will the additional demand for a share come from when important funds are already invested to such a large extent?
But what are the funds that are currently at the top of the study doing differently? Scope analyst Bartels noticed: “They are investing in more stocks and are not just concentrating on classic defense companies, but are also following an expanded concept of security.”
What this means can be clearly illustrated by the current winner, the ETF “Invesco Defense Innovation”. At the end of July, the index fund was up 23 percent since the beginning of the year. What is striking is that he invests investors' money in around 70 stocks, not all of which can be described as defense companies in the narrower sense. The main stocks in the ETF include Viasat, an American operator of satellite communications networks, and Oceaneering International, a US oil services company that is increasingly investing in underwater defense. Thinking further about armaments seems to be the success motto for investors at the moment.
