Recent geopolitical tensions have highlighted the challenges faced by countries with underfunded defence capabilities, prompting renewed interest among investors in the defence sector. An incident involving a Russian warship firing warning shots near a British sailing boat south of the Isle of Wight underscored concerns about national security and defence preparedness. This event coincides with high-profile resignations within the UK government, including that of former defence secretary John Healey, who cited frustration over insufficient defence funding.

Amid ongoing delays to the UK’s defence investment plan, which was initially expected last year but postponed partly due to ministerial resignations, some investors are turning to defence-related assets as a means to indirectly support the sector and potentially benefit from future growth. This interest is bolstered by advances in military technology and innovation driven by private companies, including firms like Anduril Industries. Founded by Palmer Luckey, Anduril focuses on autonomous military systems using artificial intelligence and has recently secured $5 billion in funding. The company is exploring a public offering, aiming to provide broader investment opportunities in defence technologies.

Investment options for individuals seeking exposure to the defence sector include exchange-traded funds (ETFs) and investment trusts. ETFs such as the HANetf Future of Defence ETF, with $3.1 billion in assets and an annual fee of 0.49 percent, encompass 63 companies across NATO countries, including Boeing, Rolls-Royce, Rheinmetall, Thales, Leonardo, and Saab. This fund generated an 18 percent total return last year. In contrast, BlackRock’s iShares Global Aerospace and Defence ETF features 90 holdings and a lower fee of 0.35 percent, but delivered more modest returns of around 7 percent over the same period. BlackRock’s Europe-focused iShares Defence ETF underperformed further with returns below 5 percent.

While these ETFs do not distribute dividends, they employ full stock replication, meaning they hold actual shares rather than synthetic derivatives, which can carry additional counterparty risks. For investors seeking income alongside capital growth, certain investment trusts may be more suitable. Funds like Schroder UK Mid Cap, JPMorgan Claverhouse, and Global Opportunities have significant stakes in defence firms such as Chemring, Rolls-Royce, and Dassault Aviation. These trusts reported returns ranging from 11 to 22 percent last year and yield dividends between 3 and 4 percent annually, with management fees higher than typical ETFs but still within moderate levels.

One standout performer in this area is the Seraphim Space Investment Trust, which focuses substantially on defence-related satellite companies. The trust achieved a remarkable 166 percent total return over the past year, although it carries a relatively high expense ratio of 1.77 percent.

For investors willing to accept concentrated exposure, individual shares in major defence contractors remain an option. BAE Systems, the UK’s largest defence manufacturer, delivers a 1.9 percent dividend yield and has seen its share price rise significantly since early 2025.

The growing interest in defence investments reflects a broader recognition that geopolitical uncertainties may drive sustained government spending in the sector, despite the ethical complexities and risks involved. As global tensions persist, some investors are viewing defence-related assets as a necessary component of diversified portfolios aimed at balancing risk and return in an evolving security landscape.