In Greek, the word titan signifies great strength. It comes from mythology, as the Titans were the pre-Olympian gods and revered for their vigor and power.

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Key Risks: Government policy shifts, defense budget cuts, export controls and sanctions, political risk in client nations, trade policy volatility, dependence on government contracts, project delays and cost overruns, subcontractor and supplier reliability, cybersecurity threats, technological obsolescence, R&D failures. These factors can lead to significant losses, and past rallies may not be repeated.

In Greek, the word titan signifies great strength. It comes from mythology, as the Titans were the pre-Olympian gods and revered for their vigor and power.

Against a backdrop of heightened geopolitical uncertainty, strength in the form of military power is back at the top of the agenda. Look no further than June’s NATO summit, where several members of the alliance signed up to more than double defense and security spending from 2% to 5% of economic output, or gross domestic product, by 2035. No formal treaty obligation exists yet1. While being overall a positive milestone for defense companies, there is still a risk that the political situation can change, and promises will not materialize. Please refer to the main risk factors section in the fund prospectus, website as well as below in this article. Key risks include sudden reductions in government defense budgets, export-license suspensions, currency fluctuations, sector concentration, and equity-market volatility. These factors could lead to a full loss of the invested capital.

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It’s little wonder that defense stocks have been standout performers over the last 12 months. We have identified five of the industry’s leaders – what we call the ‘Titan 5’ – each of them generating triple-digit share price returns in 20242 and continuing to perform in 2025. Between them, they represent almost a third of the VanEck Defense UCITS ETF (DFNS) and give an insight into what’s driving its appreciation3.

These are the Titan 5, please note that these companies are currently a part of the portfolio as of June 2025 and represent only a small part of the invested capital:

1. Palantir Technologies, a US data intelligence company, supplies software to governments and their militaries. It reported revenues of $884 million for the first quarter of 2025, up by 39% on the same period in 20244,5. While being a pioneer in its area, new technologies bring a lot of uncertainty and projected growth might not materialize, strongly affecting the share price.

Like other Asian defense companies, shares in Hanwha Aerospace, South Korea’s largest defense group, have soared in anticipation of orders as Europe rearms. Its sales rose by 278% in the first quarter of 2025 compared with the previous year6,7. Order growth may stall if European defense spending softens, export licenses are restricted or currency moves turn adverse, which could cause significant share price declines and potential capital loss.

Italian defense stock Leonardo, one of Europe’s defense champions, saw its order book rise by more than 15% to €20.9 bn in 20248, and the company gears up to meet further growth in orders. It is reasonable to keep in mind that the current environment could still lead to a fall in government aerospace budgets, project delays or cost overruns could reverse recent share gains and lead to heavy investor losses.

Germany’s Hensoldt, a manufacturer of air defense radars, recently offered to take on laid off car workers as it sought to meet a record order backlog standing at €6.6 bn at the end of 20249,10. With all recent tailwinds for the company, it is worth keeping in mind that contract cancellations, tighter defense budgets or supply-chain shortages could sharply reduce earnings and erode the share price.

The final member of the Titan 5 is the UK’s Babcock International, which makes submarines and warships. The group’s operating profit surged by 51% to £364 million in the 12 months to March 31, 2025¹¹. As with many other defense companies, reduced naval procurement, cost inflation or schedule slippage on key programs could hurt profitability and drive the share price lower.

As Europe’s militaries undergo a once-in-a-generation rearming, these companies’ order books are surging, as are their share prices. Taken together with the other shares held by the VanEck Defense UCITS ETF (DFEN), they have lifted it to a gain of 56.49%.

Source: VanEck. Past performance is not a reliable indicator of future results. The fund was launched on 31 May 2023.

Performance History: Average Annual Total Returns* (%)

*Periods greater than one year are annualised. Reference periods indicate cumulative performance, not annualized.

The rise in NATO spending, especially in Europe, is widely agreed to have transformed the outlook for the defense sector. As order books rise there’s a greater likelihood of companies benefiting from long-term contracts and sustained demand for their products and services.

It’s also important to note that defense expenditure has historically been agnostic of the economic climate. US defense spending rose in the last three recessions14.

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The ETF’s underlying index focuses on:

• Investments in defense companies: Constituents must derive 50% (25% for current components) of their revenues from the military or defense industries.

• Exclusion criteria: Companies involved in controversial weapons such as anti-personnel landmines are excluded, as well as companies violating established norms. It is worth noting that the fund neither has a sustainable investment objective nor promotes environmental and/or social (E/S) characteristics15.

Given the rally in the Titan 5 and other defense stocks, it’s natural for investors to wonder if they have missed the opportunity. Geopolitical uncertainty, military spending pledges and bulging order books would suggest otherwise.

At the same time, investors should bear in mind that investing in equities is risky. You may lose money up to the total loss of your investment due to the Main Risk Factors such as Equity Market Risk, Liquidity Risks and Industry or Sector Concentration Risk described in the KID and in the sales prospectus. Market evolution is not guaranteed.

1 Source: NATO, as of 27 June 2025.

2 Source: Morningstar, the data for the period between 01 Jan 2024 and 31 Dec 2024 and between 01 Jan 2025 and 30 June 2025 in local currencies.

3 Source: VanEck, as of 30 June 2025.

4 Source: Palantir Technologies, as of 30 June 2025.

5 Please note past performance is not a reliable indicator of future results and specific risks apply to investing in single stocks.

6 Source: Hanwha Aerospace, as of 30 June 2025.

7 Please note past performance is not a reliable indicator of future results and specific risks apply to investing in single stocks.

8 Source: Leonardo, as of 30 June 2025.

9 Source: Hensoldt, as of 30 June 2025

10 Please note past performance is not a reliable indicator of future results and specific risks apply to investing in single stocks.

11 Source: Babcock International, as of 30 June 2025.

12 Source: VanEck. Data for the period between 1 January 2025 and 30 June 2025. Further periods are available on the fund page.

13 Please note past performance is not a reliable indicator of future results. The past-performance figures are shown in US dollars (USD).

14 Source: SIPRI Military Expenditure Database, as of 30 June 2025.

15 The decision to invest in the VanEck Defense UCITS ETF should take into account all of the fund’s characteristics or objectives as described in the prospectus, the KID/KIID and other legal documentation.