BlackRock has introduced a new ETF in Europe focused on developed market equities from the aerospace and defence sector.
NATO countries have ramped up their defence spending amid escalating conflicts worldwide.
The iShares Global Aerospace & Defence UCITS ETF (DFND NA) has been listed on Euronext Amsterdam with an expense ratio of 0.35%.
Geopolitical tensions have surged to the forefront of global concerns due to recent events, including Russia’s invasion of Ukraine and the Israel-Hamas conflict in Gaza, marking a significant impact on wealth management strategies.
These conflicts, along with rising tensions in the Asia-Pacific region over issues like China, Taiwan, and the South China Sea, and ongoing instability in Africa’s Sahel region, have prompted NATO countries to increase their defence spending, with some members expected to significantly surpass the alliance’s suggested target of 2% of GDP, reflecting a shift from the post-Cold War era of reduced military expenditures.
As a result, ETF providers in both Europe and the US have been launching aerospace and defence sector-focused products to cater to the increasing investor demand for exposure to this industry.
BlackRock’s fund is the third to enter this space in Europe following the April 2023 launch of the $150 million VanEck Defense UCITS ETF (DFNS LN), which comes with an expense ratio of 0.55%; and the July 2023 debut of HANetf’s $60m Future of Defence UCITS ETF (NATO LN), which costs 0.49%.
Methodology
DFND is linked to the S&P Developed BMI Select Aerospace & Defense 35/20 Capped Index which selects its constituents from a universe of developed market stocks with market capitalizations above $300m and average daily trading volumes greater than $3m.
All firms within the Aerospace and Defence sub-industry of the Global Industry Classification Standard (GICS) that meet the eligibility requirements are selected for the index. Constituents are weighted by float-adjusted market capitalization subject to a cap of 33% on the largest company and a cap of 19% on any other firm.
As of the end of January 2024, the index contained 56 stocks with two-thirds (66.9%) of the total weight dedicated to US-listed companies and the majority of the remaining weight allocated to firms from France (17.2%) and the UK (8.9%).
The largest constituent, RTX Corporation, accounted for a weight of 12.4% with other notable positions including Boeing, Airbus, Lockheed Martin, and Safran SA. The top ten positions collectively make up nearly three-quarters (73.7%) of the total exposure.