The uncomfortable investment trend performing in 2026

The increasing fragmentation and shift from globalisation to regionalism is driving an uncomfortable long-term trend – the remilitarisation of the world. Accordingly, global spend has risen to match it.

In fact, global spending on defence has risen 41% in the last 10 years, reaching just shy of US$2.9 tr in 2025.

While Europe has seen the biggest surge (14% last year, according to the Stockholm International Peace Research Institute), most countries have increased spend. Australia is no exception.

Just as with any other trend involving government spend, there are a broad range of companies that benefit from this – some names will be highly familiar to investors, such as the likes of Boeing and Lockheed Martin, which also service other sectors, while others are more niche and industry-specialised.

Investing in defence is divisive, raising ethical and values-based concerns and questions for investors. For some, it’s a matter of essential services supporting national security, while for others, concern is directed towards the use of products in warfare and impact on humanity. There are no easy answers.

The forces behind the increasing militarisation of the world

At the start of 2026, the Doomsday Clock was set the closest it has ever been to midnight in its history – 85 seconds to midnight. It was created in 1947 as a representation of the danger to humanity and is managed by the Bulletin of Atomic Scientists.

It’s a telling picture of the state of geopolitics today, and just one of the aspects driving the increasing military spend around the globe.

Some of the factors driving spend, according to both the OECD and the Stockholm International Peace Research Institute, include:

• The need to bolster defence and security within nation states. This also supports economic stability.
• Pressure from the United States and new targets set in 2025 for NATO. NATO members have committed to spending 5% of GDP on defence and spending by 2035.
• Growing strategic competition, territorial disputes and maritime security.

Vision of Humanity also described it as a result of the decentralisation of global security: “Countries are increasingly investing in their own deterrence capabilities rather than relying on collective security frameworks.”

The ongoing trend to defence spending

The United States, China and Russia were the top three military spenders in 2025, while Europe as a region has demonstrated the largest growth in spend as part of a push to become self-reliant and off the back of the Russian war in Ukraine.

Even domestically, Australia has committed to spending $425 billion over the next decade on defence, with a focus on maritime capabilities. Some of this spend has already been announced in the form of the AUKUS submarines and the Hunter Class Frigates.

It’s a trend that's here to stay. 

As Jamie Hannah, Deputy Head of Investments and Capital Markets for VanEck Australia, puts it, “This is a long-term structural trend that will play out over the next decades and is dictated by government expenditure.”

In a recent report, United Nations Secretary-General António Guterres warned that global military spending could reach US$6.6 trillion by 2035. Nearly five times the level at the end of the Cold War.

Performance in this trend

“The political landscape has evolved over the past five years as governments all over the world have dramatically increased their defence budgets. 

The increased budgets materially increase the amount of large-scale defence contracts that companies can in the sector can deliver. These contracts are often large in scale and have a long duration,” says Hannah.

Tom Wickenden, Investment Strategist for Betashares, is already seeing the evidence of government spend in corporate returns.

“For investors, the key point is that defence spending is set through multi-year budgets and procurement pipelines, not daily headlines. That is already showing up in company backlogs. 

For the second year in a row in 2025, the major defence contractors’ order books we track grew by more than US$100 billion, their total order books now exceed US$1 trillion for the first time,” he says.

He adds that the contracted future orders can give clarity over earnings growth, even in market volatility.

Wickenden cautions that defence stocks are still volatile – they don’t rise in a straight line.

“Short term share prices continue to move around with geopolitics, valuations and market sentiment,” he says, adding that, “valuations, policy risk and contract execution still matter.”

An example of this in play is Lockheed Martin (NASDAQ: LMT), the largest global defence contractor which offers aerospace systems, fighter jets, missile defence, space systems and cybersecurity solutions. 

In the March 2026 letter from its board leaders, it noted unprecedented demand for its technology and a record backlog at the end of 2025 of nearly US$194billion, representing two and half years of sales.

Another example is BAE Systems (LON: BA), a multinational aerospace, arms and information security company. It referenced a strong order intake in its 2025 Preliminary Results presentation earlier this year, citing its order backlog had grown to a new record of £84bn.

For a general picture of performance, one option is looking at the MSCI World Aerospace and Defense Index. It offered returns over 21.15% for the year to 29 May 2026, three-year returns of 30.80% and five-year returns of 18.97%. If you compare this to the MSCI World, the one-year returns were 27.49%, three-year returns were 21.89% and five-year returns were 11.96%.

Wickenden notes that investor behaviour has started to follow government spend in this space.

“As at April, global defence ETF FUM had risen 133% over the prior 12 months, from US$46 billion to US$107 billion. 

Australian investors have also heavily adopted the theme, directing more than $550 million into defence-themed ETFs over the same period. That flow data suggests defence has moved from a niche thematic exposure to a more widely used portfolio satellite,” he said.

What investors need to know

It’s likely that you will find defence companies already exist in your portfolio, be it your superannuation or otherwise, given the size of some of these companies and the government structural spend in this space, though not necessarily a significant exposure to the trend as a whole.

Being aware of this may prompt some questions about your own views on this and how you want to invest going forward. It can be helpful to discuss your views and implementing these with your financial adviser.

Those who are considering exposure to this structural growth trend through a targeted tilt could look at the ASX-listed ETFs in this theme. These are:

• Betashares Global Defence ETF (ASX: ARMR) 
• VanEck Global Defence ETF (ASX: DFND) 
• Global X Defence Tech ETF (ASX: DTEC)

Hannah cautions investors to remember, “as it is a higher risk investment, there can be volatility and therefore it is suited to investors who are looking to invest for five years or longer to benefit from structural trends.”

Both he and Wickenden suggest that it be considered a minor or satellite position, rather than a core holding, in a well-diversified portfolio.

As with any other trend-based investment, it’s important to take your time to do your research before investing and understand what it means for you and your investment strategy.