Direxion Daily Aerospace & Defense Bull 3X Shares

DFEN

Market cap $363M

The top annual ETF performers share a common trait, the firm behind them and investors who are ready to trade no matter which direction the market goes.

AI spending garners plenty of attention. But it's got a long way to go to get anywhere near global defense expenditures.

Direxion Daily Aerospace & Defense Bull 3X Shares is rated a strong buy due to robust defense spending trends and geopolitical momentum. DFEN benefits from surging European demand for US armaments, NATO's 5% defense spending target, and multi-year contracts favoring US defense companies. Recent geopolitical tensions and shifting rhetoric between the US and Russia further fuel short-term momentum for DFEN.

European nations are recognizing they need to commit more capital to defense. Therefore,related spending is surging around the world.

Defense stocks are overvalued with high forward P/Es and a strong war premium, making volatility risk significant, especially for leveraged ETFs like DFEN. DFEN's daily 3x leverage amplifies volatility drag, making it unsuitable for long-term holding. But beware, this does not necessarily mean the end of the bullish phase for the aerospace and defense sector.

While most investors may arguably be focused on productive ventures such as cloud computing and artificial intelligence, it's an objective reality that the robust but controversial defense sector has been an outperformer. Since the beginning of the year, the benchmark Dow Jones U.S. Select Aerospace & Defense Index has gained nearly 35%.

DFEN, USD, UTSL and WILD posted double-digit gains in July as tech strength, trade optimism and Fed stability lifted markets.

In this risk-on market, levered themes have gathered inflows along with some outsized YTD returns. Many of today's levered ETFs are single-stock ETFs focused on high-flying companies such as Palantir.

URAA, FNGU, USD, LMBO and DFEN soared more than 60% in Q2 as AI-driven tech, a dovish Fed and momentum buying lifted leveraged ETF returns.

GDXU, KORU, DFEN and others soared in the first half of 2025 as AI momentum, global stimulus, and gold gains fueled leveraged ETF outperformance.