Select STOXX Europe Aerospace & Defense ETF

EUAD

Market cap $1B

Europe's macro outlook is shifting. After years of fiscal restraint and fragmented policy, the region is entering a new chapter - one centered on pro-growth fiscal policy, energy security, and capital-market reform.

Defense industry giants like Lockheed (LMT) and Raytheon (RTX) retain top spots, but innovative firms and European players are gaining ground. Boeing (BA) has fallen in defense revenue rankings, while newcomers like GE Aerospace (GE), SpaceX, and Palantir show strong growth potential. To capture defense innovation, I recommend ETFs such as SHLD, EUAD, and WDEF, with SHLD as a top pick for technology-driven exposure.

The Select STOXX Europe Aerospace & Defense ETF is a concentrated European defense bet that benefited from the NATO rearmament trade. After a near 80% run from my initial interest in the SHLD ETF, a similar fund, I believe the narrative is priced in. Procurement friction, manpower issues, and an imperfect index converge to make EUAD a "Hold" for me, as I am unsure about Europe's future given recent headlines.

Ideally, thematic ETFs capture long-term secular investment themes not fully represented by broad market or sector-based approaches. The best thematic index implementations make use of quantifiable measures such as revenue and market share to identify companies with meaningful exposure to specific themes.

Active investors have likely gotten the memo that international stocks are throttling U.S. counterparts in 2025. As of Oct. 6, the MSCI ACWI ex USA IMI Index, which combines developed and emerging markets equities, is higher by 29.2% year-to-date compared to a gain of "just" 15.6% for the S&P 500.

The Vanguard S&P 500 ETF (NYSEARCA:VOO ) is the most popular in terms of size, with over $775 billion in total assets under management.

The Select STOXX Europe Aerospace & Defense ETF is well-positioned to benefit from Europe's increasing focus on drone warfare and defense spending. Recent drone incursions and calls for a European 'drone wall' could drive significant demand for anti-drone technology, benefiting EUAD's holdings. EUAD is fairly valued compared to U.S. peers but offers a higher potential upside if European military spending materializes.

Whether it's the U.S. government shutdown, the broader market hitting all-time highs, or perhaps too much exuberance around artificial intelligence (AI), there's plenty of reason to question the elevated valuations of U.S. stocks. U.S. markets are the envy of the world, but every asset has an appropriate value, which is why it can be beneficial for investors to broaden their horizons and look at stocks internationally.

In 2025, the best-performing ETF themes include gold and silver mining (SLVP, RING), bitcoin miners (WGMI), uranium (URA) and defense (EUAD, SHLD).

Defense ETFs are set to rally as the U.S.-UK Technology Prosperity Deal fuels AI-driven defense growth with $350B investment.