Zoe Morrison
- Global defence spending hit $2.46trn in 2024, with significant increases expected, especially from NATO countries following political pressure.
- European aerospace and defence indices have outperformed, showing strong returns over 3 years compared to broader benchmarks.
- FTSE Russell offers targeted indices for investors wanting exposure to aerospace and defence, enabling precise sector performance tracking.
Geopolitical instability is rising, and there are widespread demands to increase defence spending, as well as a raft of recently announced national commitments to do so. Equity investors are paying close attention to this trend and share prices are moving as a result.
In this FTSE Russell Insight, we look at the indices from our range that best enable investors to express a market view on the burgeoning defence and aerospace sector.
Defence spending is on the rise
Last year saw a large acceleration in global defence spending, reflecting perceptions of growing geopolitical instability: according to the International Institute for Strategic Studies[1], global defence spending reached US$2.46trn in 2024, a big jump from US$2.24trn in the previous year.
This 7.4% inflation-adjusted increase outpaced the real-terms rises seen in 2023 and 2022 (6.5% and 3.5%, respectively).
Meanwhile, the Trump Administration has intensified the conversation with European NATO allies about defence funding, suggesting an increased allocation of national budgets to the military.
In January 2025, President Trump said that the minimum level of expenditure for NATO members should increase to 5% of gross domestic product (GDP)[2] . Currently, only Poland, Latvia, Estonia, Greece and the US spend more than 3% of their GDP on defence[3] - a significant shortfall by comparison with Trump’s stated goal.
Classifying aerospace and defence stocks
How can investors best express a sector-wide view on aerospace and defence stocks? The Aerospace and Defense sector falls within the Industrials Industry under the Industry Classification Benchmark (ICB), which is operated and maintained by FTSE Russell.
The Aerospace and Defense sector includes the manufacturers, assemblers and distributors of aircraft and aircraft parts that are used in commercial or private air transport. It also includes companies procuring components and equipment for the defence industry (including military aircraft, radar equipment and weapons).
However, the sector excludes manufacturers of communications satellites. These belong to the telecommunications equipment subsector (which lives within a separate ICB Industry, Telecommunications).
Recent outperformance in Europe
The recent pressure on European governments to boost their military spending has led to significant gains in both European and US aerospace and defence stocks: reflecting the recent acceleration of defence spending on both sides of the Atlantic Ocean, both the FTSE Europe All Cap Aerospace and Defense index and the Russell 3000 Aerospace and Defense index have delivered healthy outperformance vis-à-vis their parent indices during the last three years.
Relative performance: European and US aerospace and defence indices
| Index | 1M | 3M | 6M | YTD | 1Y | 3Y |
|---|---|---|---|---|---|---|
| FTSE Europe All Cap Aerospace and Defense Index | 9.19 | 34.68 | 35.7 | 34.68 | 33.64 | 150.10 |
| FTSE Europe All Cap Index | -3.38 | 5.73 | 3.09 | 5.73 | 6.50 | 27.82 |
Source: LSEG, total returns in USD as of March 31, 2025. Past performance is not a guide to future returns.
| Index | 1M | 3M | 6M | YTD | 1Y | 3Y |
|---|---|---|---|---|---|---|
| Russell 3000 Aerospace and Defense Index | -0.35 | 5.89 | 1.73 | 5.89 | 18.25 | 38.74 |
| Russell 3000 Index | -5.83 | -4.72 | -2.21 | -4.72 | 7.22 | 26.73 |
Source: LSEG, total returns in USD as of March 31, 2025. Past performance is not a guide to future returns.
Taking a view on defense
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