Best Defence & Aerospace ETFs on the ASX

A defence and aerospace ETF invests in companies that manufacture military equipment, cybersecurity systems, satellites, and aerospace technology. The primary ASX option is ARMR (BetaShares Global Defence and Cybersecurity ETF, launched 2023), which holds major contractors like Lockheed Martin, Raytheon (RTX), BAE Systems, Northrop Grumman, and Thales. These companies benefit from long-term government contracts, with revenues driven by rising NATO defence budgets, geopolitical tensions, and the structural shift toward increased military spending across Western democracies following Russia's invasion of Ukraine.

With ARMR currently the only pure-play ASX-listed defence ETF, evaluate its 0.57% management fee against US-listed alternatives like ITA or PPA (accessible via international brokers but lacking ASX convenience and CHESS holding). Check index methodology - ARMR blends traditional defence primes with cybersecurity firms, diluting pure defence exposure. Assess currency impact since holdings are predominantly USD and EUR-denominated without AUD hedging, and review liquidity via on-screen bid-ask spreads, as newer thematic ETFs can have wider spreads in early trading years.

Defence ETFs directly conflict with most ESG and ethical investment frameworks - virtually all major ESG-screened ETFs on the ASX (including ETHI, FAIR, and VESG) explicitly exclude weapons manufacturers, particularly those involved in controversial weapons like cluster munitions or nuclear arms. This creates a genuine tension for investors who hold both ESG and defence allocations, as the thesis for each directly contradicts the other. SMSF trustees should document their investment strategy clearly, as the ATO requires SMSFs to have a written investment strategy, and holding both ESG-excluded and ESG-focused assets may warrant explicit justification.

Risks include heavy concentration in US-listed mega-cap defence contractors (Lockheed and RTX alone can exceed 15% of holdings), geopolitical event-driven volatility, and political risk from potential budget cuts or peace negotiations reducing spending forecasts. Thematic concentration means no sector diversification, and distributions are typically unfranked as income is sourced from foreign companies. Defence ETFs suit investors with a tactical or thematic conviction on rising global military expenditure who are comfortable with the ethical trade-offs, and work best as a satellite allocation of 5–10% alongside a diversified core portfolio.