Forget AI – these ASX ETFs are riding a global megatrend with years of tailwinds ahead

While artificial intelligence continues to dominate headlines, another global megatrend is beginning to accelerate and grab headlines — defence spending.

In early 2026, defence-focused investments are back in the spotlight as geopolitical tensions persist and governments commit to unprecedented military budgets. For Australian investors, this has renewed attention on ASX ETFs offering diversified exposure to global defence contractors and military technology leaders.

Two powerful forces are driving this trend.

A world that feels less stable, not more

Despite hopes that the post-pandemic era would bring a more cooperative global environment, reality has moved in the opposite direction.

Cold and hot conflicts continue across Eastern Europe, the Middle East, and Asia-Pacific flashpoints. Meanwhile, major powers including the United States, China, and Japan are actively modernising their military capabilities. Smaller nations are following suit, often under pressure to meet alliance commitments or defend strategic interests.

This environment is pushing defence spending higher — not just as a short-term response, but as part of long-term strategic planning. Governments are investing in missile defence, cybersecurity, autonomous systems, surveillance technology, naval assets, and aerospace platforms. These are multi-decade programs, not one-off purchases.

For investors, that matters. Defence companies often benefit from long contracts, recurring revenue, and government-backed demand that is less sensitive to economic cycles.

A $1.5 trillion signal from the White House

That long-term trend was given fresh momentum this week.

US President Donald Trump announced plans to lift America’s military budget by 50% to approximately US$1.5 trillion by 2027, citing global instability and the need to maintain strategic superiority.

To put that number into perspective, it would represent the largest defence budget in history — comfortably exceeding the combined military spending of several major nations.

Markets did not ignore the signal. Global defence stocks rallied sharply following the announcement, with many companies hitting new highs in early 2026. The message was clear: defence spending is not peaking — it is accelerating.

Given the size of the US defence ecosystem, higher American spending tends to flow through supply chains globally, benefiting contractors, subcontractors, and technology providers across multiple regions.

Why these ASX ETFs are in focus

Rather than taking a punt on individual defence stocks, many investors have gravitated toward ASX ETFs that offer broad, rules-based exposure to the global defence supply chain.

Two in particular have stood out.

The VanEck Global Defence ETF (ASX: DFND) has surged more than 75% over the past 12 months, excluding dividends. DFND has a heavier weighting toward US and European defence primes and advanced technology providers, reflecting where the bulk of global defence spending is flowing. Its portfolio includes exposure across missile systems, aerospace, intelligence software, and next-generation defence platforms, with a strong tilt toward companies embedded in long-term NATO and allied procurement programs.

By contrast, the Betashares Global Defence ETF (ASX: ARMR) — up over 60% in the past year, excluding dividends — takes a slightly broader approach. While it also holds many of the world’s largest aerospace and defence contractors, ARMR’s construction places more emphasis on diversified military hardware and infrastructure suppliers, offering exposure across traditional defence manufacturing alongside newer areas such as surveillance, communications, and security technology.

Not without risks, but supported by structural demand

As with any thematic investment, defence is not risk-free. Valuations across the sector have risen, and political sentiment can shift over time. Defence companies also operate in an environment where delays, cost overruns, or policy changes can impact earnings.

However, the structural backdrop remains supportive. Governments rarely slash defence spending during uncertain times, and modern warfare increasingly relies on advanced technology rather than manpower alone. That trend favours ongoing investment, not retrenchment.

Foolish Takeaway

AI may still command the spotlight, but defence spending is shaping up as one of the most durable investment themes of the decade.

With global tensions unresolved and the world’s largest economy preparing to spend US$1.5 trillion on its military, the tailwinds behind defence-focused ETFs look set to persist well beyond 2026.

For investors seeking diversified exposure to this powerful megatrend, defence ETFs remain firmly on the radar.

The post Forget AI – these ASX ETFs are riding a global megatrend with years of tailwinds ahead appeared first on The Motley Fool Australia.

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Motley Fool contributor Leigh Gant has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.