Core Insights - European defense spending is on the rise, significantly impacting the performance of related stocks and ETFs [3][7] - The MSCI ACWI ex USA IMI Index has outperformed the S&P 500, indicating a shift in investor interest towards international stocks, particularly in Europe [1][2] Group 1: European Defense ETFs - The Select STOXX Europe Aerospace & Defense ETF (EUAD) and the WisdomTree Europe Defense Fund (WDEF) provide targeted exposure to the European defense sector [4][9] - EUAD has seen substantial success, with assets under management reaching $1.24 billion shortly before its first anniversary, benefiting from increased defense budgets across Europe [6][7] - WDEF, launched in July, holds more than twice as many stocks as EUAD, with a significant allocation to mid- and small-cap stocks, which may offer growth potential [10][12] Group 2: Performance and Strategy - EUAD has surged over 91% year-to-date, appealing to investors seeking familiarity and safety with its large-cap focus [12] - WDEF, while not as established, offers exposure to smaller, potentially high-growth European defense companies, which could be advantageous in the current market [11][12] - The expense ratios for WDEF (0.45%) and EUAD (0.50%) provide a slight cost advantage for WDEF, although lower fees do not guarantee superior returns [13]

Core Insights - The core viewpoint of the article is that NATO's target of a 3.5% increase in core defense spending could lead to a potential increase in European government debt by $2 trillion by 2035 if implemented without offsetting measures [1] Group 1: Defense Spending Impact - The increase in defense spending is expected to be gradual, influenced by national security considerations, the scale of the defense industry, fiscal issues, electoral support, and industrial absorption capacity [1] - The anticipated growth in military expenditure will vary across countries based on their specific circumstances and priorities [1] Group 2: Sovereign Debt Implications - The short-term impact on the credit quality of European sovereign debt is expected to be limited, as the growth in defense spending is likely to be moderate and slow [1]