Yesterday (2 June), they got another boost as Prime Minister Keir Starmer announced a £15bn fund to upgrade the military. He said the UK must be “ready” for war against Russia, pledging to hike defence spending to 3% of GDP — up from 2.3% today — by the next parliament.

Whether or not this is realistic given the dire state of the UK’s finances is another matter. But the message echoes what’s being said by European leaders, which is that military spending is going to increase substantially over the next decade.

The question for investors is whether all this is already priced into UK defence stocks. The FTSE 250‘s Chemring, which jumped 7% today, is at a 14-year high. Meanwhile, Babcock International from the FTSE 100 is up 107% this year alone!

A basket of shares

My view is that it could be dangerous chasing individual defence stocks right now. Not all are guaranteed to keep surging.

Therefore, it might be better to consider a defence ETF that gives exposure to a wide range of different companies. One I like the look of is the HANetf Future of Defence ETF (LSE: NATO). It “provides exposure to the companies generating revenue from NATO and NATO+ ally defence and cyber defence spending“.

The ETF contains 61 different firms, with the top holding — Germany’s Rheinmetall — only accounting for around 5.4% of the portfolio. Other top holdings include top US cybersecurity stocks like Fortinet and CrowdStrike, as well as BAE Systems.

One stock that might stand out is Palantir Technologies, the AI software giant. However, the company is deeply integrated into the defence industry through its advanced data analytics and artificial intelligence (AI) platforms. These are used by the US and UK armies, CIA, FBI, and more. 

Top 10 holdings (June 2025)

Valuation considerations

Now, I should point out that some of these stocks are trading very highly today. Palantir, for example, is currently sporting an insane price-to-sales ratio of 105! Therefore, some volatility is to be expected, especially if stock markets head south.

Another issue is high concentration in two sectors (defence and cybersecurity). If one or both of these fall out of favour with investors, then the ETF could underperform for a while.

However, it’s also worth mentioning that not all the stocks appear overvalued. Tech firm Cisco Systems is trading at a forward price-to-earnings multiple of just 16.

Analyst Ben Reitzes recently called Cisco “the sovereign AI player no one is talking about“, as it has an emerging role in building cloud-based AI infrastructure for governments like Saudi Arabia and the United Arab Emirates. 

Looking ahead

Another positive here for me is that the ongoing fees are just 0.49% per year, according to Hargreaves Lansdown. I think that’s pretty reasonable (some thematic ETFs charge much than this). 

Overall, I like the focus on the future of defence, with the ETF providing exposure to AI and cybersecurity as well as traditional arms contractors. And despite the share price rising 45% year to date, I think this ETF will head higher in the years ahead.

The post 1 excellent defence ETF to consider buying for a Stocks and Shares ISA  appeared first on The Twelfth Magpie.

Here are three ETFs spanning cybersecurity, artificial intelligence (AI) and defence I think have tons of potential and are worth further research.

No longer a luxury

First up is L&G Cyber Security UCITS ETF (LSE: ISPY). This fund holds 41 stocks across the increasingly relevant cybersecurity industry. In recent weeks, Marks and Spencer, Co-op and Harrods have all been hit by cyber attacks.

On 27 May, Adidas was the latest firm to have customers’ personal information stolen. This highlights how cybersecurity spending is now a necessity rather than a luxury for organisations of all sizes.

The fund holds many top stocks in the space, including CrowdStrike, Cloudflare, and Palo Alto Networks. So far in 2025, CrowdStrike and Cloudflare are up 37% and 50% respectively.

The ETF’s share price is up 56% over the past two years. However, one consequence is that valuations are quite high across much of the portfolio. A risk here then is that the stock market pulls back, reducing the ETF’s value in the near term.

Over the long term though, I think it’s set up for further gains. AI’s creating an escalating arms race between cyber attackers (groups and nation states) and the defending companies in this ETF.

AI innovation

Sticking with AI, I think the iShares AI Innovation Active UCITS ETF (LSE: IART) is well worth considering. According to McKinsey Global Institute, AI software and services alone are projected to generate $15.5trn-$22.9trn in annual economic value by 2040!

As the name suggests, this ETF’s invested in firms doing a lot of AI innovation today. Top holdings include chip king Nvidia, Microsoft, which has a large stake in ChatGPT maker OpenAI, and Meta, the social media giant that’s using AI to improve targeted ads on Facebook and Instagram.

Now, one thing worth pointing out is that this actively-managed ETF was only launched in January. So there’s no track record of outperformance to go on, which adds a bit of risk.

However, I like that among the 39 holdings there are some smaller innovative names in there. These have the potential to eventually become tech giants in their own right. Examples include cloud-based data firm Snowflake, gaming platform Roblox, and Cloudflare (again).

Dual focus

The third fund is the HANetf Future of Defence ETF (LSE: NATO). Since launching in mid-2023, the share price has more than doubled.

This ETF has a dual focus. It provides exposure to companies benefitting from both NATO military and cyber defence spending. Top holdings include Germany’s Rheinmetall, the UK’s BAE Systems, and AI software giant Palantir.

While these stocks have been on fire recently, a cut to the US defence budget could hurt their upwards trajectory. Meanwhile, a global recession might lead to lower growth and earnings for some firms in the portfolio.

On the other hand, European nations are now committed to spending hundreds of billions on building their long-neglected defence capabilities. This is a powerful multi-decade trend that’s likely to push the ETF higher, over time.

The post 3 top ETFs from the London Stock Exchange to consider in June appeared first on The Twelfth Magpie.

Outperforming BAE Systems shares

I bought this ETF for my own portfolio back in November, shortly after Donald Trump won the US election. And I’m not regretting it. Already, I’m sitting on a gain of 16.5% (after trading fees). That’s a great return in a little over two months. For reference, shares in UK defence contractor BAE Systems have only risen about 1% over the same timeframe. So, I’ve outperformed them by a wide margin.

Diversified exposure to the sector

This performance gap is exactly why I chose to go with a defence ETF instead of buying shares in BAE Systems or another individual company. Back in November, I was pretty confident that the defence sector, as a whole, would — sadly from a human suffering perspective — do well in the months and years ahead. However, when you invest in an individual company, there’s always the risk that it won’t fully participate in an industry rally. With this ETF, I was able to get exposure to nearly 60 different stocks – including the likes of Safran, Rheinmetall, and L3 Harris – and that has worked out well as many defence stocks have risen in recent months.

A modern take on an old industry

One reason I chose to invest in this particular ETF, instead of other similar products, was that it takes a futuristic view of defence, providing exposure to cybersecurity and artificial intelligence (AI) companies alongside traditional defence companies. Some examples here include CrowdStrike, Palantir, and Palo Alto Networks (which are all doing really well this year). Today, the nature of defence is rapidly evolving. And these kinds of companies give me exposure to cutting-edge technologies that are shaping the future of the industry.

Low fees

I was also attracted to the fee structure. Ongoing fees for this ETF are just 0.49% per year, which to my mind are reasonable (although I also need to pay trading commissions to buy and sell).

Favourable outlook

Looking ahead, there are no guarantees that this ETF will continue to do well. If geopolitical uncertainty eases (as we hope it will) and there’s a sentiment shift away from defence and cybersecurity stocks, the product could underperform.

Another risk is US defence budgets. With the Department of Government Efficiency (DOGE) – led by Elon Musk – looking to cut US government costs, there’s a chance that US defence contractors could see lower revenues in the years ahead.

However, with European leaders having just met to discuss the ramp up of defence spending across Europe, I think the outlook for the defence sector, as a whole, looks favourable. So, I believe this ETF is worth considering for a diversified portfolio today.

The post Looking for defence stocks to buy? Consider this brilliant ETF appeared first on The Twelfth Magpie.

Now, one way to get exposure to defence is to invest in British firm BAE Systems (LSE: BA.). I’ve taken a different approach however, and bought a defence Exchange Traded Fund (ETF) for more diversified exposure to the theme.

I still like BAE Systems shares

BAE Systems shares do look quite attractive to me. Right now, the company’s revenue and earnings are growing at a pretty healthy rate as countries scramble to protect themselves. Next year, they’re projected to grow 8% and 12% respectively.

Meanwhile, the valuation seems reasonable. With analysts expecting earnings per share (EPS) of 75.9p for 2025, the forward-looking price-to-earnings (P/E) ratio is 16.4 – only a little bit above the market average.

With a single stock however, there’s no guarantee I’ll benefit from the growth of the defence industry. That’s because there’s always a degree of company-specific risk.

In this case, governments could award contracts to other major defence contractors such as Lockheed Martin and L3Harris. Or defence spending could be focused on areas that BAE doesn’t specialise in (eg artificial intelligence (AI)).

So I decided to take a more diversified approach to the defence sector and I bought an ETF for my portfolio. This reduces stock-specific risk considerably.

In 37 years in the intelligence profession, I’ve never seen the world in a more dangerous state.

Sir Richard Moore, MI6 Chief

Broad exposure to the defence industry

The fund I went for was the HANetf Future of Defence ETF (LSE: NATO). This is a relatively new product that was only launched in 2023.

What I like about this ETF is that it gives me exposure to many different defence companies (including BAE Systems). In total, there are nearly 60 stocks in the portfolio (from multiple geographic regions including the US, Europe, and the UK).

I also like the fact that there are companies that are heavily involved in cybersecurity and AI such as Palantir Technologies and CrowdStrike. The nature of defence is rapidly evolving and these kinds of companies give me exposure to cutting-edge technologies that are shaping the future of the industry.

As for fees, they’re pretty reasonable at 0.49% a year. I also need to pay trading commissions to buy and sell however, given that it’s an ETF.

Of course, there are still no guarantees I’ll do well with this investment. If global spending on defence was to drop, the sector, and this ETF, could underperform. Similarly, if cybersecurity stocks were to experience a pullback, the product could struggle.

I’m optimistic it will do well over the long run though. In the years ahead, I expect government spending on defence to remain high.

The post I could have bought BAE Systems shares for my SIPP but I invested in this defence ETF instead appeared first on The Twelfth Magpie.