America’s Push to Take Greenland: Is the Global Order Falling Apart, and Will Defense Be the Winner?
Back in 2017, the Trump administration floated the idea of acquiring Greenland. In interviews, Trump said he was fascinated by the deal—the island is massive, and in his words it would be a “great real estate transaction,” one that would secure his place in history.
In 2019, Denmark shut it down—hard. Copenhagen called the notion of selling Greenland and its people “completely absurd.” Many observers wrote the proposal off as a joke.
Then early 2020 hit. COVID exploded, domestic crises took center stage, and the Greenland idea was shelved.
Fast-forward to 2025. Trump is back in power, and the Greenland purchase is back on the table—this time with real momentum.
The world can’t laugh it off anymore. To signal support for Denmark, several European countries staged symbolic military exercises in mid-January, projecting unity and sending a message to Washington.
That move reportedly infuriated Trump. He responded with a threat: a 10% tariff on eight European countries involved in the drills starting February 1, escalating to 25% from June, unless—and until—the U.S. reaches an agreement on the “complete and total purchase of Greenland.”
The looming U.S.-EU trade war has put last year's trade agreement on shaky ground. Facing tariff threats, Europe is considering countermeasures, including imposing tariffs on $108 billion worth of U.S. goods and even planning to activate anti-coercion tools!
The escalating tensions have triggered a surge in gold prices. Spot gold has consecutively broken through the $4,700 and $4,800 levels, with year-to-date gains exceeding 12%.
At the Davos Forum, Canadian Prime Minister Carney stated that the rules-based international order has collapsed, and that some European countries no longer regard the United States as an ally.
Amid such turmoil, investors' rush to buy gold is understandable. Yet another asset class stands to benefit from this chaos: defense stocks!
So far this year, the defense and aerospace index is up 8.8%, significantly outperforming the $S&P 500(.SPX)$ , which is down 0.7% over the same period:
Defense sector ETFs delivered particularly strong performance, with $Global X Defense Tech ETF(SHLD)$ surging over 18.8% year-to-date, $SPDR S&P Aerospace & Defense ETF(XAR)$ climbing more than 17.7%, $First Trust Indxx Aerospace & Defense ETF(MISL)$ rising over 16.4%, and $iShares U.S. Aerospace & Defense ETF(ITA)$ gaining over 10.8%.
Over the long term, defense ETFs have significantly outperformed the S&P 500 Index, making them excellent long-term investment targets:
Why does the defense sector outperform the index in the long run?
Essentially, it stems from the continuous annual growth in military spending across nations. For instance, the U.S. defense budget reached $997.3 billion in 2024, marking an 8.9% year-over-year increase—far exceeding GDP growth!
China's military expenditure reached $313.7 billion in 2024, marking a 5.7% year-on-year increase that also outpaced GDP growth.
In 2023, global military expenditures amounted to $2.5242 trillion, reflecting a 9.8% year-on-year growth.
Now that the U.S. is stabbing its allies in the back, it's highly likely that all parties will continue to increase military spending!
The good times for defense stocks are far from over!
Compared to directly buying defense stocks, I recommend related ETFs. Individual stocks carry significant risk, while ETFs allow you to ride the broader market trend.
Currently, the largest defense ETF is the $iShares U.S. Aerospace & Defense ETF(ITA)$ , with over $14.9 billion in assets under management and a management fee of 0.38%—considered low. However, its holdings are highly concentrated: the top holding is $GE Aerospace(GE)$ , accounting for a whopping 19.7% of net assets; the second-largest holding is $RTX Corp(RTX)$ , representing 15.7% of net assets.
Honestly, no idea what the fund manager was thinking—why make the holdings so concentrated? From this year’s performance alone, ITA has underperformed several other defense ETFs.
The largest and highest-yielding defense ETF is $Global X Defense Tech ETF(SHLD)$ , currently exceeding $6.9 billion in assets with a management fee of 0.49%, slightly higher than ITA. However, its holdings are more diversified, with $Lockheed Martin(LMT)$ as the largest position at 8% of net assets—far more balanced than ITA. Moreover, SHLD boasts a significant advantage: its portfolio includes European defense companies like Rheinmetall, its third-largest holding at 7.3% of net assets.
With this positioning, SHLD stands to benefit significantly from Europe's substantial increase in defense spending! No wonder its gains this year have clearly outperformed ITA!
$Invesco Aerospace & Defense ETF(PPA)$ is quite similar to ITA, but it charges higher management fees and holds slightly larger positions than ITA. Investors with a stronger preference for the U.S. defense sector may consider it.
The greatest advantage of $SPDR S&P Aerospace & Defense ETF(XAR)$ lies in its low management fee of just 0.35% and highly diversified holdings. Its largest position is $Kratos Defense & Security Solutions(KTOS)$ , with a market cap of only $21.7 billion. Compared to its larger counterparts, it favors small-cap defense stocks:
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