Why Defense-Tech ETFs Are Reshaping the Best Industrial ETF Landscape

The industrial sector is experiencing a significant rotation. While traditional holdings in aerospace and defense continue to drive performance—with the S&P 500 seeing steady gains—a new wave of investment vehicles is capturing something the old guard industrial ETFs may be missing: the technology transformation of national defense strategies.

The Shifting Dynamics of Industrial Sector Investing

When investors seek the best industrial ETF exposure, many reflexively turn to broad-based sector funds. The Vanguard Industrials ETF (VIS) is a textbook example—it’s delivered nearly 20% year-to-date returns with a portfolio of 391 stocks and a razor-thin 0.09% expense ratio. For most investors seeking diversified industrial exposure, this remains a solid foundation.

But beneath the surface, something more profound is happening. Global defense spending is accelerating, and it’s becoming increasingly technology-centric. Artificial intelligence, cybersecurity, autonomous systems, and advanced manufacturing are now the battlegrounds where nations compete. This shift has spawned a different breed of industrial ETF.

Enter the Next Generation: Global X Defense Tech ETF

The Global X Defense Tech ETF (SHLD) launched in September 2023 and has already begun outpacing traditional industrials alternatives. With $4.97 billion in assets, it doesn’t replicate the heavyweight approach of including Boeing and Lockheed Martin as primary anchors. Instead, it holds Palantir Technologies as its top position—a distinctly modern choice that signals where defense procurement is heading.

This $4.97 billion fund allocates 14.6% to technology stocks, making it something altogether different from conventional best industrial ETF offerings. It’s a growth-oriented play on an old sector being remade by innovation.

Why Geographic Diversity Matters Now

Here’s where the comparison becomes critical: most traditional industrial ETFs are purely U.S.-focused. The Global X alternative features nearly 37% international holdings, with meaningful exposure to European defense budgets. Germany alone plans to double defense expenditures over five years, while France projects its 2027 defense spending will be double that of a decade ago. An allocation of 8% to German equities and 5.5% to French stocks positions investors where geopolitical capital is actually flowing.

The Takeaway for Best Industrial ETF Searchers

The question isn’t whether broad-based industrial ETFs have merit—they do. It’s whether investors can afford to miss the thematic pivot. The best industrial ETF choice increasingly depends on whether you’re seeking backward-looking value exposure or forward-looking exposure to how warfare and national security are being fundamentally reshaped by technology. For those with appropriate risk tolerance, that distinction matters considerably.