How to Invest in Defence Technology

As the global landscape evolves, modern defence planning has shifted towards safeguarding nations through a combination of technology-driven innovations and essential defence infrastructure. Paired with increased spending in the defence sector, the development and application of new technologies is creating investment opportunities the world over. So, how can investors access this growing thematic?

Let’s X-Plain:

  • What is defence technology?
  • Why invest in defence technology?
  • What considerations are there for investing in defence technology?
  • Why use an ETF to gain exposure to defence technology?

What is Defence Technology?

Defence technology is technology used in military or national security operations like enhancing intelligence. It includes areas such as drones, artificial intelligence (AI), and cybersecurity. Defence tech also encapsulates more traditional sectors like advanced military systems and hardware. Generally, modern defence tech is designed to protect and future-proof as it is focused on precision, surveillance, and reducing human risk.

Why Invest in Defence Technology?

Defence tech is a thematic, offering growth potential as investments in the space increase. There are three key factors which drive the investment case:

  • Historically Consistent Growth: Global defence spending has grown at an annualised rate of 4.3% over the past 40 years1, underscoring the essential need for national security and growing role of defence in economies worldwide.
  • Rising National Security Focus: Increasing global tensions are driving nations to boost defence spending, reflecting heightened national security concerns and a competitive push to maintain strategic advantage.
  • Focus on Tech-Driven Defence: DTEC includes companies with a revenue filter ensuring exposure to AI, drones, and cybersecurity, capturing the future of innovation in defence.

What Considerations are there for Investing in Defence Technology?

There are two key considerations to review before investing in defence tech.

  1. The longevity of its investment thesis (how long can growth in these types of companies continue): Geopolitical risks and government policy are key influences of ongoing investment in defence tech, hence if these change it may shift the growth potential of the thematic.
  2. Ethical preferences: Given defence technology can be used in a number of settings from national security and surveillance to active combat, it is important for investors to consider whether this type of investment aligns with their specific risk appetite and ethical preferences.

Why use an ETF to Gain Exposure to Defence Technology?

Defence technology is a broad category, so selecting any one stock in the hopes it will perform well may be risky. Hence, an ETF which aims to capture the thematic more broadly will help combat single-stock concentration.

An ETF like the Global X Defence Tech ETF (ASX: DTEC) offers targeted exposure to the defence technology sector, aiming to capture growth in defence innovation and investment around the globe. It does so by holding 50 leading companies involved in technological innovations across key areas of the defence industry – spreading the exposure across the value chain and creating inbuilt diversification within the targeted thematic.

Related Fund

DTEC: The Global X Defence Tech ETF (ASX: DTEC) invests in companies at the forefront of defence innovation, including AI, drones, and cybersecurity – all crucial components in today’s modern defence landscape.