Core Insights - Intensifying geopolitical tensions have led to a significant increase in global defense budgets, benefiting Defense ETFs which have outperformed the broader market [1][4] Drivers Behind the Outperformance - Global defense spending is surging due to geopolitical fragmentation, with NATO members targeting 5% of GDP for defense by 2035, up from 2% in 2014 [2] - Non-NATO countries like India and China are also increasing their defense budgets, with India seeing a 9.5% year-over-year increase and China a 7.2% rise [3] Market Dynamics - Major defense contractors are securing long-term government contracts across various defense technologies, providing stable revenue streams that are less affected by economic downturns [4] - The upcoming third-quarter earnings cycle is expected to show strong performance for Defense ETFs, driven by these favorable conditions [5] Earnings Expectations - The Aerospace sector, which includes defense stocks, is projected to report earnings growth of 249%, compared to a 5.2% increase for the S&P 500 [6] Notable Defense ETFs - **Global X Defense Tech ETF (SHLD)**: Year-to-date gain of 82.3%, top holdings include Palantir and Lockheed Martin [7][8] - **SPDR S&P Aerospace & Defense ETF (XAR)**: Year-to-date gain of 38.9%, top holdings include Kratos Defense and AeroVironment [9] - **iShares U.S. Aerospace & Defense ETF (ITA)**: Year-to-date gain of 41.5%, top holdings include GE Aerospace and Boeing [10][11] - **Invesco Aerospace & Defense ETF (PPA)**: Year-to-date gain of 33%, top holdings include RTX Corp. and Lockheed Martin [12] - **Themes Transatlantic Defense ETF (NATO)**: Year-to-date gain of 51.6%, top holdings include GE Aerospace and Airbus Group [13]

Core Insights - The U.S.-UK Technology Prosperity Deal (TPD) is expected to significantly boost defense exchange-traded funds (ETFs) due to collaboration on defense capabilities, with over $350 billion in combined investments from both sectors [1][6] - AI-driven defense companies are gaining traction as modern warfare increasingly relies on information and speed, allowing militaries to make rapid, data-informed decisions [2][3] - The TPD includes a commitment from the UK to purchase over $80 billion in goods from U.S. tech and defense companies over the next five years, benefiting companies like Palantir [5] Defense ETFs Overview - The TPD aims to enhance the U.S.-U.K. special relationship in technology, directly impacting defense ETFs that focus on AI-driven defense companies such as Palantir, L3Harris Technologies, and Lockheed Martin [4][6] - Select STOXX Europe Aerospace & Defense ETF (EUAD) has gained 85.4% year to date, focusing on European defense companies, including BAE Systems [7][8] - Global X Defense Tech ETF (SHLD) has increased by 78% year to date, with major holdings in Palantir, RTX Corp., and Lockheed Martin, all engaged in AI-focused defense technologies [8][9] - SPDR S&P Aerospace & Defense ETF (XAR) has risen by 36.8% year to date, including companies like Kratos Defense & Security Solutions and Rocket Lab, which are involved in AI-based defense technology [9][10] - iShares U.S. Aerospace & Defense ETF (ITA) has gained 39.9% year to date, with significant holdings in GE Aerospace and Boeing, both innovating in AI-driven defense technology [10][11] - Invesco Aerospace & Defense ETF (PPA) has increased by 32% year to date, focusing on U.S. defense and aerospace operations, with major holdings in Boeing and Lockheed Martin [11]

Group 1 - Defense stocks are currently overvalued, with forward price-to-earnings ratios exceeding the industry average and reflecting a significant "war premium" [1] - The volatility in defense stocks can be easily triggered by geopolitical narratives, particularly involving key figures like Trump, Putin, and Zelenskyy [1] Group 2 - The analysis aims to provide insights into the asset management sector, focusing on market dynamics and investment opportunities [1] - The initiative combines rigorous data analysis with actionable opinions and ratings on ETFs and trending instruments in the asset management space [1]