A New Era for European Defense

European Defense

Europe must be able to defend itself – this knowledge is being represented by more and more European politicians. In order to guarantee one’s own territorial security, however, extensive investments by governments and the European Union are necessary.

Roel Houwer, Senior Product Manager at VanEck Europe, explains in his comment why this is far more than the war in Ukraine and what this can mean for investors.


Many leaders in NATO member states today see the urgency to significantly expand their national defense capabilities for their own territorial security. This is not least due to the fact that individual Member States and Europe as a whole would be heavily dependent on support from individual countries, particularly from the United States, in the event of a defense.


More and more NATO countries seem to have recognized the signs of the times and are now taking the target of spending at least two percent of gross domestic product (GDP) on defense, which was set in 2014, more seriously. This year there are already 18 of the 31 NATO member states that are expected to meet this requirement – compared to just seven last year. In a recent study, JP Morgan assumes, that all NATO members will exceed the two percent threshold with their armaments expenditure in the coming years – which will increase the average expenditure of the NATO countries by up to 21 in the near future Percent could lead.

Europe wants to make itself more independent – and invests

The urgency now seems to be arriving in previously reserved European countries such as Germany, which is expected to exceed the two percent threshold again this year for the first time in decades. While instability at the European external borders remains an enormous risk for European security, Chancellor Scholz calls for a preventive strengthening of European defense capacities –, which could be the impetus for a long-term reduction in Europe’s dependence on the protective shield by the US military.


EU Commission President Ursula von der Leyen recently called on the countries of the European Union to promote arms production in order to strengthen the military-industrial complex in Europe and to expand the EU’s defense capabilities. When developing a strategy for a pan-European defense industry, the EU Commission also wants to share experiences in the pan-European use of taxpayers’ money to promote the production of Covid 19 vaccines and for the common one Use gas purchases.

Many of the risks lead to high investment requirements

The tensions between Russia and NATO and the EU could increase rather than decrease in the future and there is currently no sign of improvement. However, there are also a number of other long-term factors that increase geopolitical tensions and require higher military and security spending. For example, the trade and strategic conflicts between the United States and China are facing an uncertain outcome.


In addition to the classic military conflicts, cyber attacks have become a growing risk, which has now become a question of national security due to the enormous importance of the global digital infrastructure for the economies. In addition, globalization, which has long been taken for granted, has stalled: the COVID-19 pandemic in particular has shown how dependent many countries are on imported goods. In addition, nationalism, protectionism and populist movements are increasing worldwide, which in turn leads to growing geopolitical tensions.


For companies in the security and defense sector, these developments are likely to mean increasing demand and full order books in the long term. Even though armaments have traditionally been a sensitive issue, many people have changed their assessment and understanding of the relevance of this issue since the beginning of the war in Ukraine at the latest. Many investors now see great opportunities in stocks of companies in the security and defense industry: ours alone VanEck Defense UCITS ETF, which focuses its pure play approach on companies that make up the majority of their sales in the military and defense industries, has risen to over $ 200 million in fund volume in the short year since its launch in April 2023.

Risk notice:


A plant in VanEck Defense UCITS ETF involves risks, in particular:


Industry or sector concentration risk: The assets in the VanEck Defense UCITS ETF can be concentrated in one / one or more specific sectors or industries. The ETF may be at risk that economic, political or other conditions that have a negative impact on the sectors or sectors concerned will have a greater negative impact on the performance of the Fund, than if the fund’s assets were invested in a wider variety of sectors or industries.


Liquidity risks: There are liquidity risks when it is difficult to buy or sell a particular financial instrument. If the relevant market is illiquid, it may happen that a transaction cannot be entered into or that a position cannot be dissolved at a favorable or reasonable price or at all. This is a factor to consider when investing in a defense ETF.


More detailed risk information, further information as well as key information sheet and sales brochure for the VanEck Defense UCITS ETF can be found at https://www.vaneck.com/de/de/verteidigungs-etf/

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