Introduction
BlackRock and BNP Paribas have launched new exchange-traded funds (ETFs) aimed at directing investments into Europe's burgeoning defense industry, reflecting a growing trend among asset managers.Context
In response to escalating geopolitical tensions and U.S. President Donald Trump's warnings against over-reliance on Washington, European governments are significantly increasing their spending on military assets such as ammunition and tanks. This has piqued the interest of asset managers seeking to benefit from the ongoing rearmament efforts in the region. Notably, there are now over 50 defense industry ETFs available globally, with a recent surge of nine funds introduced in Europe since late last year.Developments
The launches by BlackRock, the world's largest asset manager, and the fund arm of French bank BNP Paribas highlight the rising demand for these investment vehicles. Prior to these launches, asset managers such as Amundi and WisdomTree also entered this market segment.ETFs have become an increasingly popular option for investors, granting them access to a diversified index of stocks or bonds without the need to select individual assets. So far in 2023, investors worldwide have contributed an additional $8.4 billion into defense ETFs, with $2.7 billion directed specifically towards new European-focused offerings, as reported by Morningstar data. This figure is more than double the $4.1 billion that was accumulated throughout 2024.
BlackRock's European ETF, launched under its iShares platform, has officially listed in Amsterdam and Frankfurt. Similarly, BNP Paribas announced its ETF focused on European defense had been listed in Paris, with plans for listings in Germany, Italy, and Switzerland soon. This fund aims to support defense companies based in European NATO member states.
In addition to launching new products, fund managers are also navigating the complexities of investing in defense, with some having removed previous exclusions on defense investments to accommodate the growing demand.