Defense ETFs Benefit from Trade and Fiscal Policy

Trump administration policies are influencing ETF investor strategies, leading to record market dispersion and flows nearing $1.2 trillion. The policy agenda has caused significant swings in ETF performance based on tariff decisions, impacting sector allocation and creating new opportunities in defense and aerospace ETFs.

Defense ETFs have seen significant gains due to increased Pentagon spending and NATO pressure on European countries to boost defense budgets. The iShares U.S. Aerospace & Defense ETF (ITA) and Select STOXX Europe Aerospace & Defense ETF (EUAD) have surged, with 18 ETFs in the U.S. offering exposure to the defense theme.

Trade policy uncertainty has driven stock dispersion to levels not seen since the pandemic, affecting return differentials within retail sectors. Dollar General Corp. (DG) and Dollar Tree Inc. (DLTR) have seen expanded performance gaps due to varying China exposure levels, prompting interest in active ETF strategies.

The dollar’s 7% weakening against trade-weighted currencies has benefited exporters and international ETF performance, with both developed and emerging markets outperforming U.S. markets. Despite limited ETF flows into international strategies, the market is seeing positive results.

Deregulatory efforts under SEC Chairman Paul Atkins are expected to accelerate ETF launches, with over 60 managers filing for ETF share classes of mutual funds. The crypto ETF ecosystem has grown to $158 billion across 76 funds, approaching the $178 billion in gold ETF assets, as ETF flows are on track to surpass 2024’s record.

Read more at Yahoo Finance: Trade Fiscal Policy Drive Defense ETF Gains, Record Flows