Global Defence: security as a secular trend

Key Takeaways

• Defence is increasingly viewed as a long-term structural investment theme, not a short-term cyclical trade, due to persistent geopolitical tensions and rising multi-year military budgets.
• The opportunity set is expanding beyond traditional contractors into drones, missile defence, cyber, space, electronics, software and C4ISR capabilities.

From geopolitics to a secular investment theme

Defence is undergoing a profound re-rating in the minds of policymakers, industrial planners and investors alike. What was once often treated as a cyclical and sometimes controversial corner of equity markets is increasingly being recognised as a structural theme tied to national resilience, strategic autonomy and technological leadership. Despite that shift, defence companies still account for only around 2.5%¹ of the MSCI World Index, underscoring how underrepresented the theme can remain in broad global equity allocations.

Global military expenditure reached around US $2.7tn in 2024², marking the tenth consecutive annual increase and the sharpest rise since the end of the Cold War. Importantly, this is not simply a short-term replenishment cycle following recent conflicts. Defence budgets are increasingly being embedded into multi-year procurement plans, industrial policy frameworks and capacity buildouts that could support earnings visibility across the defence value chain for years to come.

Structural forces driving global defence

The first driver is a more persistent and geographically dispersed threat backdrop. Russia’s invasion of Ukraine accelerated rearmament in Europe, while tensions in the Indo-Pacific and instability in the Middle East have reinforced the need for deterrence, readiness and stockpile rebuilding on a broader global basis. The result is a higher baseline for defence spending, not only among countries directly exposed to conflict, but also among allies reassessing force posture, resilience and supply security.

Figure 1: Geopolitical tensions and security threats drive defence spending

Source: SIPRI Stockholm International Peace Research Institute, WisdomTree as of 10 February 2026.

The second driver is that the nature of defence spending is changing. The current cycle is not limited to traditional land, air and sea platforms. New spending is increasingly directed towards air and missile defence, drones and autonomous systems, cyber and electronic warfare, space-based assets, and C4ISR³ capabilities. That broadens the opportunity set beyond prime contractors to include businesses involved in sensors, software, electronics, secure communications and mission-critical subsystems.

The third driver is that defence budgets are being supported by national strategy and alliance commitments rather than ad hoc responses. The ten largest military spenders account for roughly 75%⁴ of total global defence expenditure, highlighting how policy decisions in a relatively concentrated group of countries can shape the industry’s revenue outlook. NATO countries, meanwhile, allocate on average 58%² of their total defence budgets to equipment, research and development, and maintenance, reinforcing the case that procurement and modernisation remain central to the current cycle.

Figure 2: Top 10 Global Defence spenders in 2024

Source: SIPRI Stockholm International Peace Research Institute, Morningstar, WisdomTree as of 30 June 2025. Historical performance is not an indication of future performance and any investments may go down in value.

For investors, this combination of geopolitical persistence, technological change and longer funding horizons points to something more durable than a short-lived sentiment trade. In our view, global defence markets appear to be in the early stages of a new supercycle, supported by both sovereign demand and industrial investment.

Why a targeted global approach matters now

A purely regional defence allocation can be powerful, but a global approach may be especially compelling at this stage of the cycle. The United States remains central to defence technology and procurement. Europe continues to accelerate rearmament and industrial coordination. At the same time, other markets are becoming increasingly important as both buyers and suppliers of defence equipment. A global strategy can therefore capture a broader mix of prime contractors, subsystem manufacturers and emerging industrial champions positioned to benefit from rising defence budgets, modernisation programmes and export demand.

The WisdomTree Global Defence UCITS Index (Ticker: WTGDEFUN Index) currently has the highest estimated long-term growth rate among its peers at 18.1%. While its price-to-earnings (P/E) ratio appears elevated at 33.2x in isolation, this looks more reasonable when considered alongside its expected earnings growth. On this basis, the Price/Earnings-to-Growth (PEG) ratio is 1.8x, which is lower than that of benchmark indices.

Figure 5: Long-term growth and valuation metrics (forward P/E and PEG)

Source: WisdomTree, FactSet, Bloomberg, as of 31 December 2025.  Holdings of the peers were sourced from Bloomberg. Fundamentals were sourced from FactSet. PEG ratios are based on forward P/E ratios and est. long term growth. MSCI World denotes MSCI World Index. MSCI World Aerospace & Defence denotes MSCI World Aerospace & Defence Index. You cannot invest directly in an index. Historical performance is not an indication of future performance and any investments may go down in value.

Compared with broader aerospace and defence benchmarks, WisdomTree’s approach tilts towards companies with higher direct revenue exposure to defence, while allocating more meaningfully beyond the US and Europe.

Conclusion

As security priorities harden and defence budgets become more deeply embedded in national industrial strategies, the investable case for the sector is evolving. Defence is increasingly moving from a niche satellite exposure to a more strategic allocation candidate within global equities.

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Originally Posted March 31, 2026 – Global Defence: security as a secular trend

¹ Source: MSCI Inc., latest available data as of February 2026.
² Source: SIPRI Stockholm International Peace Research Institute, WisdomTree as of 10 February 2026.
³ C4ISR represents Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance.
⁴ Source: SIPRI Stockholm International Peace Research Institute, Morningstar, WisdomTree as of 30 June 2025. Historical performance is not an indication of future performance and any investments may go down in value.