Germany has introduced a major overhaul of its military planning by releasing a set of new strategic documents that include its first standalone military strategy. The package, presented by Defense Minister Boris Pistorius, also outlines future capabilities, troop expansion plans, and a new reserve structure. Together, these documents are meant to guide the country’s armed forces, known as the Bundeswehr, for the next 20 years. For investors who want exposure to international defense companies and spending, these three defense ETFs stand out:
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- Themes Transatlantic Defense ETF (NATO)
- SPDR S&P Aerospace & Defense ETF (XAR)
- iShares U.S. Aerospace & Defense ETF (ITA)
The strategy, called “Responsibility for Europe,” identifies Russia as the main threat and outlines possible conflict scenarios involving NATO. It also introduces a “one theater approach,” which means regions like Europe, the Middle East, and the Indo-Pacific are now seen as connected rather than separate. At the same time, the plan changes how Germany measures military strength. Instead of focusing on how many tanks or aircraft it has, the focus shifts to what the military can actually do in a conflict. This includes priorities like long-range precision strikes and building stronger drone capabilities.
In addition, Germany plans to significantly expand its forces by increasing active troops from about 185,000 to 260,000 by the mid-2030s. The reserve force will also grow to at least 200,000 and will play a bigger role in homeland defense and supporting allied operations. On top of that, Germany is working to modernize how its military runs day-to-day. For example, a new reform plan includes over 150 measures and hundreds of steps to reduce bureaucracy, digitize processes, and use artificial intelligence for routine tasks.
Which Defense ETF Is the Better Buy?
Turning to Wall Street, out of the three ETFs mentioned above, analysts think that XAR has the most room to run. In fact, XAR’s price target of $337.83 per share implies 27.8% upside potential.
