Defense ETF SHLD Outperforms QQQ by 420% in 2025

The defense sector’s explosive performance in 2025 represents a dramatic reversal from early-year expectations. What began as concern about potential defense budget cuts under the new administration quickly transformed into the most powerful tailwind the industry has seen in decades. President Donald Trump’s support for a $1 trillion defense budget, combined with NATO’s unprecedented agreement to stretch defense spending targets to 5% of GDP, created the perfect storm for defense-focused investments.

The geopolitical landscape has been equally supportive of defense sector growth. Ongoing conflicts, particularly the war in Ukraine that has evolved into what appears to be a prolonged engagement, have driven countries worldwide to significantly increase military expenditures. Europe, in particular, has been aggressively boosting defense budgets, creating a multi-year revenue stream for defense contractors and technology providers. This combination of political support and geopolitical necessity has created an environment where defense spending is accelerating years ahead of previous projections.

The Global X Defense Tech ETF’s remarkable success stems from its sharply focused investment approach. Unlike broader defense funds that might include commercial aerospace companies, SHLD maintains strict purity in its defense exposure. The ETF seeks to replicate the performance of the Global X Defense Tech Index and invests at least 80% of its net assets in securities comprising this index, specifically targeting companies involved in advanced military hardware and software.

SHLD’s portfolio construction emphasizes companies at the intersection of defense and cutting-edge technology. The fund specifically targets firms managing cybersecurity systems, utilizing artificial intelligence, and operating in the ‘big data’ space. This technological focus has proven particularly valuable as modern warfare increasingly depends on software, data analytics, and AI integration. With a reasonable expense ratio of 0.50%, the ETF provides cost-effective exposure to this high-growth segment.

The fund’s top holdings reflect its strategic approach, with Palantir (PLTR) leading at 9.09% allocation, followed by RTX Corp (RTX) at 8.42% and Rheinmetall at 7.2%. These companies represent the vanguard of defense technology modernization, with Palantir’s data analytics platforms and RTX’s advanced defense systems perfectly positioned to benefit from increased military spending. The remaining portfolio consists of a carefully selected mix of North American and European defense companies, nearly all of which have delivered exceptional performance throughout 2025.

While triple-digit gains may not repeat in 2026, the structural drivers supporting SHLD’s outperformance appear durable. The global trend toward militarization and technological modernization represents a multi-year cycle rather than a temporary spike. European nations face years of increased spending simply to meet the new 5% GDP target, while the United States’ accelerated path to a $1 trillion defense budget creates a stable foundation for continued growth.

Defense technology companies enjoy several advantages in the current economic environment. Their revenue streams, primarily derived from recurring government contracts, provide insulation from market downturns and economic volatility. Additionally, high-tech defense firms are relatively shielded from tariff pressures, and potential interest rate cuts could further support their growth trajectory. Even with flat overall defense budgets, the software and AI components of military spending are projected to grow in the high-teens through 2028.

Analysts project that SHLD’s revenue proxy should expand 12-15% year-over-year through 2028, with earnings growth potentially reaching 15-25%. If Wall Street maintains its current premium on defense technology stocks, the ETF should continue to deliver strong returns. However, investors should note that while SHLD has demonstrated significant outperformance during market advances, its concentrated nature means it could experience sharper pullbacks during broader market contractions compared to more diversified funds like QQQ.