5 Advantages of the Themes Transatlantic Defense ETF (NATO)

In recent years, defense sector exposure has become increasingly important from a portfolio construction perspective. Amid intensifying geopolitical turbulence, defense stocks have proven to be both a source of alpha and a valuable portfolio hedge.

Via the Themes Transatlantic Defense ETF (NATO), investors can access the defense theme through a single ticker, gaining exposure to a broad range of companies across the industry. Here’s a look at some key advantages of this ETF and how it differs from other defense ETFs in the market.

Growth and Resilience in a Single Investment Theme

The Themes Transatlantic Defense ETF offers investors targeted exposure to an industry that is positioned for long-term growth. At the same time, it has the potential to serve as a strategic hedge against heightened macroeconomic uncertainty and persistent geopolitical risks.

On the growth side, primary catalysts for industry expansion include:

• Increased NATO spending: As a result of rising geopolitical risks, NATO members have committed to increase their defense spending to 5% of GDP by 2035¹. This transformative shift in fiscal policy is likely to provide strong secular tailwinds for the defense industry over the coming decade.

• Stockpile replenishment: Ongoing global conflicts and military aid deliveries have depleted baseline munitions, air defense systems, and artillery stockpiles. Restoring these depleted reserves should lead to steady, baseline procurement demand for prime defense contractors.

• Technological modernization: Defense spending is increasingly shifting from traditional hardware toward high-tech, software-centric capabilities. This migration is opening up higher-margin growth avenues for both legacy contractors and specialized defense technology entrants in areas such as AI, unmanned systems, integrated air and missile defense, space, and cyber capabilities.

On the defensive side, attractions of the theme include:

• Multi-year budget commitments: Unlike discretionary government spending that fluctuates year-to-year, defense appropriations typically represent long-term strategic commitments.

• High revenue visibility: Multi-year backlogs across the industry reduce vulnerability to general macroeconomic downturns or traditional business cycle recessions.

• Wide moats: High regulatory barriers to entry, deep intellectual property, and essential government customer relationships can protect defense margins.

• Safe-haven properties: During periods of heightened geopolitical uncertainty, investors often gravitate toward defense stocks in a phenomenon that academics refer to as a “flight to arms.”

Broad Exposure Across the Defense Industry

In terms of its strategy, the Themes Transatlantic Defense ETF seeks to track the Solactive Transatlantic Aerospace and Defense Index (SOLNATON). This index is focused on aerospace and defense companies headquartered in NATO member countries.

One major attraction of this index is that it includes companies operating in niche, fast-growing areas of the aerospace and defense markets such as space, drones, nuclear energy, and public safety. So, the Themes Transatlantic Defense ETF is far more than just a play on traditional hardware or legacy defense prime contractors – it offers exposure to next-generation security and technology.

Transatlantic Defense Exposure

One way the Themes Transatlantic Defense ETF differs from other US-listed defense ETFs such as the iShares US Aerospace & Defense ETF is that it provides exposure to defense companies on both sides of the Atlantic. Not only does it include US defense stocks, but it also includes defense stocks listed in the UK, France, Germany, and other countries across Europe.

This is an advantage because it allows investors to capture growth across the entire NATO defense ecosystem. With this ETF, investors can target the European defense contractors that stand to benefit most from accelerating NATO rearmament initiatives across the continent.

Access to Under-the-Radar Defense Stocks

Another major advantage of the NATO ETF is that it provides access to lesser-known defense stocks that aren’t on most investors’ radars. For example, some stocks that were in the ETF as of October 20, 2026 were:

• AeroVironment: AeroVironment designs and manufactures uncrewed aerial systems (drones) and loitering munitions, offering military forces tactical intelligence, surveillance, and precision-strike capabilities.

• BWX Technologies: BWX Technologies supplies nuclear components, reactors, and fuel to the national security sector, and is responsible for powering the US Navy’s nuclear-propelled submarine and aircraft carrier fleets.

• Firefly Aerospace: Firefly builds responsive launch vehicles and spacecraft, providing defense customers like the US Space Force with rapid-deployment payload access to orbit.

• Axon Enterprise: Axon develops non-lethal weapons, body-worn cameras, and cloud-based evidence management software used by law enforcement, military personnel, and public safety agencies globally.

• Rocket Lab: Rocket Lab specializes in end-to-end rocket launch services and spacecraft manufacturing, deploying national security satellites and testing hypersonic payloads (via its HASTE suborbital vehicle) for defense agencies.

Of course, NATO also offers exposure to industry giants such as RTX Corp, Lockheed Martin, and GE Aerospace. Overall, it offers investors a well-rounded, all-cap defense allocation that bridges the high-growth potential of specialized innovators with the proven stability of established prime contractors.

A Low Total Expense Ratio

Finally, the Themes Transatlantic Defense ETF has a very low total expense ratio of 0.35%. This is 45% lower than the category average². So, this is a cost-effective product. With the NATO ETF, investors can access a high-growth, geographically diversified defense strategy at a highly competitive price point.

Strategic Portfolio Fit

In summary, the Themes Transatlantic Defense ETF is a cost-effective tactical vehicle providing targeted, cross-border exposure to the global defense and aerospace value chain. Incorporating both large-cap defense primes and high-growth niche innovators, it offers investors direct participation in rising NATO defense budgets and transatlantic security spending.

Within a broader investment portfolio, the NATO ETF could serve as a multi-faceted satellite allocation bridging growth, macro diversification, and geopolitical risk mitigation. With its balanced transatlantic exposure, it has the potential to provide investors with both a source of growth and downside portfolio protection.

Footnotes:

¹NATO concludes historic Summit in The Hague, as of June 27, 2025

²etf.com, Universe of 7 Aerospace & Defence ETFs, as of May 9, 2025

Diversification does not eliminate risk.