The new year has barely begun and headlines are already full of reports of US President Donald Trump treating Greenland like one of his real estate deals. It’s a tricky situation (isn’t it always?), with Greenland having flirted with the idea of independence from Denmark. Of course, independence from Denmark and becoming a US state are two different things.
Greenland isn’t some communist country in South America under the iron grip of a dicey president. No, this is Trump sticking his thumb firmly in the eye of the EU. Trump’s presidency is becoming increasingly isolationist, an approach that has all the potential of giving a further boost to one sector above all others: defence.
And yes, it is appropriate to use the British spelling here, as the US defence budget has already been enormous. Across the pond, spending on defence has been sorely lacking for years among other Nato members. This was a major gripe of Trump and a clear message was sent to the sleepy hollow of Europe: it’s time for other members of the alliance (such as Germany and France) to start pulling their weight.
But if Nato collapses completely depending on what happens with Greenland, then what does that mean for defence spending in Europe? Surely it can only go even higher?
Shocked by a need to innovate rather than just regulate, European governments have been grinding their war machines into life. Defence spending in the region surged in 2025 and was expected to reach about 2.1% of GDP in that year. Germany even reformed its debt brake in 2025 to create headroom for this spend. Based on the Trump rhetoric, it’s difficult to imagine the spend coming down.
This has done wonders for stocks in this sector. With the Greenland issue as a rapidly developing situation, there’s likely to be significant volatility in share prices in coming days. The returns noted below are correct as at time of writing.
German defence giant Rheinmetall is up 192% in the past 12 months. Momentum in the stock is strong once more, increasing 15% in the past five days. The share has become the favoured choice of traders looking to bet on more aggressive US policies that will drive the wedge deeper between Trump and the EU. With Rheinmetall on an earnings multiple of 106 times, growth expectations are clearly through the roof.
Rheinmetall is the largest holding in the iShares Europe Defence UCITS ETF, but only just. BAE Systems in the UK is of a similar size in the ETF space (up 75% in the past year and on an earnings multiple of 32 times), while Rolls-Royce Holdings rounds out the top three (up 128% in the past year and on an earnings multiple of 19). In case you didn’t know, the listed Rolls-Royce company has everything to do with aerospace and nothing to do with cars (the automotive business is owned by BMW).
The right approach has been to pick the biggest names rather than to dabble in obscurity — after all, the trusted names win the biggest government contracts
There are three other names that have double-digit percentage weightings among ETFs. In fourth place, we find French group Thales (up 85% over 12 months and on an earnings multiple of 51). In fifth lies Leonardo-Finmeccanica; no prizes for guessing it hails from Italy. The share price is up 113% over 12 months and the earnings multiple is 32. And in sixth place, we find Saab in Sweden, no longer involved in cars but firmly involved in fighter jets. The share price looks like a jet training flight, up 197% over 12 months with a 35% rally in the past month. It trades on an earnings multiple of 71.
Despite these incredible performances, the ETF has returned just 14% in the past year. There’s a long tail of companies in the ETF space that were disappointing. The weightings in these ETFs make a big difference, as the WisdomTree Europe Defence UCITS ETF has returned 44% over the same period. Again, that’s well below the performance of the leading names.
Performance disparity is vast within the sector. It seems that the right approach has been to pick the biggest names rather than to dabble in obscurity — after all, the trusted names win the biggest government contracts.
But there’s something to keep in mind as these stocks surge once more: companies such as Leonardo win a significant portion of revenue from the US. Just how severely might Trump push Europe away?
With US giant Lockheed Martin up 14% in the past month after a flat (and volatile) performance over 12 months, the markets are betting that more US spend will be domestic. That’s probably not a silly bet right now.
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