Core Viewpoint - Geopolitical events are influencing defense spending, making aerospace and defense stocks attractive for investors in 2026 [1][5]. Group 1: Defense Spending Trends - Increased defense spending is expected from countries outside the U.S., China, and Russia, which are the top three defense spenders globally [2]. - The theme of rising defense expenditures is anticipated to continue, suggesting that investors should consider ETFs like the WisdomTree Global Defense Fund (WDGF) [2][4]. Group 2: WisdomTree Global Defense Fund (WDGF) - WDGF, launched in September, allocates 54.51% of its weight to domestic defense stocks while also including stocks from 15 other countries, indicating a connection to global defense spending growth [3][4]. - The ETF holds 88 stocks with weights ranging from 0.03% to 5.20%, and has an annual expense ratio of 0.45% [7]. Group 3: Long-term Outlook - The sentiment around defense spending suggests it will be a durable theme, as it is not a budget item that politicians are looking to cut [6]. - Security spending is becoming a protected area within government budgets, with leaders recognizing that military readiness is essential for economic stability [7].

Geopolitical Impact on Aerospace & Defense - Geopolitical unrest directly correlates with increased defense spending, leading to historic levels of global defense expenditure [7] - Ongoing conflict, such as the one involving the Israeli Air Force using F-35s, suggests continued robust demand in the aerospace and defense sector [3][13] - The situation suggests that peace is not expected in the near future, unfortunately driving defense spending [8] US Defense Budget and Spending - The House appropriators' FY26 bill is flat but includes a 45% year-over-year increase in investment spending, benefiting large-cap companies [6] - House Republicans are considering a reconciliation package that would allocate $150 billion in generational investment [7] - The Trump administration has discussed a $1 trillion defense budget, including both mandatory and discretionary spending [11] NATO and International Spending - A NATO summit is expected to discuss increasing equipment purchases to 35% of GDP [7] - If NATO were to increase spending to 5% of GDP, it could result in approximately $700 million in additional spending [11] US Foreign Military Sales - US foreign military sales are on pace for a third consecutive record year, indicating robust demand from US allies and partners [11] - Last year, foreign military sales reached $127 billion, following $18 billion the previous year [12]