🤖Missiles, AI & Drones: Inside the SHLD ETF Revolution

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Hello, ETF UNO readers! Ever noticed how the world's most consequential innovations often emerge from unexpected places? The internet began as a military communications project. GPS was built for precision weaponry before guiding your morning coffee run. And today, a new wave of technological transformation is unfolding within the defence sector—one that's reshaping everything from artificial intelligence to autonomous systems. Enter the Global X Defence Tech ETF $SHLD ( ▼ 1.57% ) , a specialised vehicle positioning investors at the intersection of national security and cutting-edge innovation.

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What is SHLD?

Launched in 2023, SHLD provides targeted exposure to around 50 pure-play defence technology companies across both developed and emerging markets. Unlike broad industrial ETFs that treat defence as a secondary focus, SHLD prioritises defence—tracking the Global X Defence Tech Index with exceptional precision. The portfolio includes traditional aerospace giants, cybersecurity specialists, AI integrators, and next-generation drone manufacturers. Think of it as your gateway to the companies that are shaping the security landscape of tomorrow.

Let’s address the elephant in the room: defence was a standout sector in 2025, with several defence-focused ETFs delivering impressive returns amid increased global tensions. However, past performance does not guarantee future success; the focus should be on structural demand drivers.

Defence spending follows a different rhythm than consumer markets. While retail sales fluctuate with economic confidence, military budgets are driven by strategic needs, such as deterrence and technological gaps. When inflation impacts household budgets, governments typically accelerate, rather than cut, defence spending. This counter-cyclical nature makes defence a valuable portfolio diversifier during tough times for consumer sectors.

SHLD's holdings reflect this evolution beyond traditional "big iron." Yes, you'll find Lockheed Martin (8.2%) and RTX (7.5%) anchoring the portfolio—companies building fifth-generation aircraft and missile systems. But look deeper: Rheinmetall (7.2%) pioneers autonomous ground vehicles; Palantir (6.7%) applies AI to battlefield decision-making; and numerous smaller positions focus on satellite communications, electronic warfare, and cyber defence.

Global defence budgets are shifting significantly. NATO members are striving to meet their 2% GDP commitment, while European nations rebuild arsenals depleted by support for Ukraine. Indo-Pacific allies are rapidly modernising their military capabilities. The Congressional Budget Office predicts a 22% year-over-year increase in U.S. defence spending for weapons procurement in fiscal 2026. With $3.6 trillion in global defence expenditures creating consistent demand, companies involved in this sector deserve investor attention, regardless of future peace or conflict.

Investment Strategy📊

Before you rush to allocate 20% of your portfolio to defence tech, let's discuss thoughtful implementation. SHLD isn't a core holding—it's a tactical satellite position designed for specific purposes:

• 🛰️Thematic Satellite Approach (Recommended): Allocate 3–7% of your equity portfolio to SHLD within a broader thematic sleeve. Pair it with complementary themes such as cybersecurity, space infrastructure, or industrial automation. This creates a "technological sovereignty" mini-portfolio reflecting nations' push for supply chain resilience and strategic autonomy.

• ⚖️Defensive Diversifier: During late-cycle economic environments, when consumer discretionary stocks weaken, consider a 5% SHLD position to offset cyclicality. Its government-contract revenue model provides visibility into earnings when corporate spending freezes. Rebalance annually—this isn't a "set and forget" holding.

• 🌍Geopolitical Hedge: If your portfolio lacks exposure to non-U.S. defence contractors (BAE Systems, Thales, Rheinmetall represent meaningful SHLD weights), this ETF provides instant global diversification within the theme. European defence budgets are projected to grow at high single-digit to low double-digit rates in 2026, favouring local contractors.

💡Critical reminder: SHLD has a 0.50% expense ratio—reasonable for a specialised thematic ETF but higher than that of broad-market funds. Ensure the strategic rationale justifies the cost. Never let a compelling narrative override portfolio discipline.

SHLD at a glance

ETF Issuer: Global X

Inception: 2023-09-11

Asset Class: Equity

Underlying Index: Global X Defense Tech Index

Geographical Focus: Global

Expense Ratio: 0.50% (as of last data point)

Dividend Yield: 0.47% (as of last data point)

Distribution Frequency: Semi-Annual

Historical Performance

Let's be transparent about performance. SHLD delivered strong returns in 2024–2025 as global defence sentiment improved.

However, thematic ETFs experience volatility—sharp rallies followed by consolidation periods when geopolitical headlines fade. SHLD's trajectory will depend less on daily news cycles and more on three structural factors:

1. Budget execution: Will approved defence budgets actually convert to contractor orders?

2. Technology adoption curves: How quickly will AI, autonomy, and directed-energy weapons move from prototypes to fielded systems?

3. Geopolitical persistence: Will strategic competition remain elevated beyond election cycles?

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest

1. Structural Budget Growth, Not Cyclical Spikes: Global defence spending is not just rebounding; it is adjusting to a higher baseline. After years of cuts following the Cold War, countries now face urgent modernisation needs: replacing outdated platforms, addressing new threats, and ensuring domestic production amid supply chain vulnerabilities. This is not a temporary surge, but the start of a multi-year investment cycle.

2. Technology Inflexion Points: Defence is undergoing a rapid digital transformation. Technologies like AI for target recognition, autonomous drones for logistics, and quantum-resistant encryption are being implemented now, not just in science fiction. SHLD offers exposure to companies profiting from these developments before they become mainstream.

3. Global Exposure Beyond U.S. Contractors: While U.S. firms dominate defence news, SHLD has notable exposure in Europe and Asia, as non-U.S. defence budgets are growing faster. Companies like Rheinmetall, BAE Systems, and Thales will benefit from European rearmament, independent of U.S. policy changes. This geographic diversification is hard to replicate elsewhere.

Top 3 Reasons Not to Invest

1. Valuation Sensitivity at Current Levels: After a strong 2025, many defence contractors are trading at elevated multiples amid sustained budget growth. However, if execution disappoints—if budgets are approved but procurement is delayed—these multiples could compress sharply. Investing after a rally of over 70% requires acknowledging that you are paying for optimism.

2. Concentration Within a Concentrated ETF: SHLD has about 50 stocks, making it relatively concentrated for a thematic ETF, with the top 10 holdings comprising over half the portfolio. This concentration means your returns will largely depend on Lockheed, RTX, and General Dynamics, highlighting the importance of recognising this risk for true diversification.

3. Ethical Considerations and ESG Exclusions: Many ESG-focused investors exclude defence contractors entirely. If your investment philosophy incorporates concerns about weapons manufacturing, SHLD fundamentally conflicts with those values—regardless of financial merits. Portfolio construction must align with personal principles.

Defence After the Rally: Is SHLD Still a Buy in 2026?🤔

Viewing SHLD as an investment in national security infrastructure is more insightful than seeing it as a geopolitical bet. Like investments in transportation, energy, and digital infrastructure, defence technology is crucial for safeguarding economic activities.

While SHLD shouldn’t replace your core equity holdings or dominate your portfolio, it offers targeted exposure to companies benefiting from defence modernisation, with awareness of potential risks.

The defence sector's performance in 2025 was driven by actual budget changes and technological advancements. The trajectory for 2026 depends on effective execution, not headlines. As an investor, focus on positioning yourself thoughtfully for plausible scenarios rather than trying to predict geopolitical events.

If the perspective of viewing defence tech as critical infrastructure resonated with you, then a deeper dive awaits. The ETF UNO newsletter provides ongoing analysis and strategic context to help integrate thematic satellites thoughtfully into a broader portfolio. We deliver weekly research and direct team insights to help you build with conviction, not reaction. Subscribe to ensure your next investment decision is well-informed.

DISCLAIMER: This article is for informational purposes only and should not be considered as investment advice. Always conduct your own research and consult with a financial advisor before making investment decisions.