EUAD ETF Outperforms VOO 7-to-1 on Defense Boom

The dramatic outperformance of EUAD over VOO isn’t accidental but stems from structural shifts in global defense spending. The catalyst began with political pressure from former President Donald Trump urging European NATO allies to meet the 2% GDP defense spending target, which has since been increased to 5%. Even before this formal commitment, European nations began rearming in early 2022 as perceptions of America’s security support waned. This created a powerful tailwind for European defense companies that has translated into extraordinary market returns.

The EUAD ETF specifically tracks the Europe Total Market Aerospace & Defense Index, targeting European companies that derive at least 50% of their revenue from aerospace and defense. With European defense names riding what analysts describe as a multi-year capital-expenditure wave rather than a speculative blip, the fund’s 84.34% year-to-date gain against VOO’s 11.73% represents one of the most dramatic outperformance stories of 2025. The 7.19x performance differential highlights how targeted exposure to specific megatrends can significantly boost portfolio returns beyond broad market benchmarks.

The EUAD ETF holds just 13 stocks, providing concentrated exposure to Europe’s defense industry leaders. Dutch aerospace giant Airbus (EADSY) constitutes the largest holding at 23.95% of the fund. The company has been a standout performer as it overtook Boeing in market preference, with many global airlines increasingly selecting its jets over American competitors.

German defense contractor Rheinmetall (RMNBY) represents the second-largest position at 15.85% and has delivered monumental returns, surging over 2,274% in the past five years. Often called ‘Europe’s Palantir,’ Rheinmetall’s performance is substantiated by fundamental business strength, with its weapons backlog surging 156% year-over-year in the first half of 2025. The company’s CEO projects the current €65 billion backlog could quickly rise to €120-130 billion, indicating sustained growth ahead.

Other significant holdings include British aerospace and arms company BAE Systems (BAESY) at 12.42%, along with French defense leaders Thales SA (THLLY) at 11.47% and Safran (SAFRY) at 10.1%. All 13 holdings have been standout performers in 2025, benefiting from the structural shift toward increased European defense spending and military self-sufficiency.

Analysts expect EUAD’s outperformance to continue through 2026 and potentially beyond due to the enduring nature of the defense spending megatrend. NATO is unlikely to reset its defense spending target below 5% even if tensions in Eastern Europe were to calm immediately. Meanwhile, the United States is gradually shifting its military bandwidth to the Asia-Pacific region, creating a vacuum that European nations must fill through increased self-sufficiency in defense capabilities.

The investment case is further strengthened by currency dynamics. The euro has strengthened significantly against the U.S. dollar, with 1 EUR now buying 1.16 USD compared to near-parity at the start of the year. This currency appreciation provides an additional tailwind for dollar-based investors in European assets, effectively increasing the value of European companies in dollar-denominated portfolios.

With expectations of double-digit top-line growth and margin expansion continuing through 2026, pullbacks in defense stocks are more likely to be bought than sold. The EUAD ETF carries a 0.50% expense ratio, representing $50 annually per $10,000 invested—higher than VOO’s minimal 0.03% but justified by the specialized exposure and dramatic alpha generation potential. For investors seeking to boost returns beyond broad market benchmarks, EUAD represents a compelling satellite holding with strong fundamental drivers.