A $5B Tailwind: How Ukraine's Allies Are Poised to Boost Defense ETFs

The protracted conflict in Ukraine has served as a significant growth catalyst for U.S. defense contractors. Renowned U.S. defense stocks like Lockheed Martin LMT, RTX Corp. RTX, General Dynamics GD and Boeing (BA have witnessed massive revenue streams fueled by Washington’s commitment, approximately $127 billion in total appropriations from the U.S. Department of War, as of June 2025, since Russia launched its full-scale invasion of Ukraine in 2022 (as per the Ukraine Oversight report of the U.S. government).

The recent failure of U.S.-Russia peace talks, which reportedly “headed nowhere,” coupled with Russian President Vladimir Putin’s hawkish warnings that he is “ready for war with Europe,” signals prolonged regional hostility. Although the United States has frozen direct military aid to Ukraine, the supply pipeline remains strong, now shifting to guaranteed purchases from allied countries.

To this end, NATO Secretary General Mark Rutte announced on Dec. 3, 2025, that cumulative pledges from NATO member nations can be expected to be about $5 billion in U.S. weapons purchases, to support Ukraine, by year-end. According to General Rutte, this amount may reach $15 billion by the end of 2026 (as reported by Euronews). 

This environment should continue to boost the share price momentum of major U.S. defense contractors and defense-focused Exchange Traded Funds (ETFs) that hold them. 

But before suggesting a few such defense ETFs to add to your watchlist, let us delve a bit deeper into what the allies are doing in terms of offering military aid to Ukraine and how that will boost defense ETFs.

The Allied Funding Mechanism Explained

The $5 billion commitment expected from NATO member nations by year-end is channeled through the NATO Prioritized Ukraine Requirements List (PURL) initiative. This program allows NATO members and partners to purchase U.S.-made weapons for Kyiv, effectively backfilling the pause in direct U.S. aid. 

Notably, the recent significant pledges that allowed General Rutte to make the $5 billion projection include new contributions from Canada (approximately $200 million), the Netherlands (nearly $290 million) and a combined package of approximately $500 million from Norway, Poland and Germany. This multi-national, coordinated effort ensures a predictable, long-term revenue stream for American arms manufacturers.

Even before this, the NATO member nations had been contributing significantly to Ukraine’s military aid, which intensified following Trump’s decision to freeze U.S. aid in March 2025. At an April meeting at NATO headquarters in Brussels, the Ukraine Defense Contact Group, composed of more than 50 countries, secured nearly $25 billion in new commitments for military aid to Ukraine. Impressively, this was the most significant increase in military support to Ukraine to date, and adds to the more than $23 billion already committed by NATO allies earlier in the year (as per the Ukraine Oversight report).

Why Defense ETFs Offer a Smart Entry Point

For the defense sector, the PURL initiative should result in multi-billion-dollar order flows for U.S. defense contractors, directly supporting their revenue generation from supplying weapons like missiles, artillery, air-defense, drones, and command-and-control platforms into the Ukraine pipeline and to replenish allied inventories. 

For investors, diversified defense-focused ETFs offer a smarter way to capitalize on this trend than selecting individual stocks. These funds provide exposure not only to the giants that build complete weapon systems but also to the vital ecosystem of component suppliers, technology firms and cybersecurity providers that are equally essential to modern warfare. 

They offer built-in diversification, reducing the risk associated with any single company, such as production and delivery delays or faults in any program, leading to a huge one-time loss.

The following defense ETFs should allow investors to broadly tap into the sustained global defense spending trend without being overly exposed to the performance swings of a single contractor.

Global X Defense Tech ETF SHLD

This fund, with net assets worth $4.80 billion, offers exposure to 49 companies positioned to benefit from the increased adoption and utilization of defense technology. Its top five holdings include GD (8.13%), which provides Abrams battle tanks to Ukraine, RTX (7.92%), which offers missile systems to Ukraine and LMT (7.73%), which supplies F-16 fighter jets to Ukraine.

SHLD has surged 67.3% year to date. The fund charges 50 basis points (bps) as fees. 

Invesco Aerospace & Defense ETF PPA

This fund, with a net asset value of $149.81 per share, offers exposure to 60 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Its top five holdings include RTX (8.49%), BA (7.73%), which offers precision-guided munitions to Ukraine, LMT (6.70%) and Northrop Grumman NOC (5.07%), which supplies ammunition to Ukraine.

PPA has soared 31.2% year to date. The fund charges 58 bps as fees. 

iShares U.S. Aerospace & Defense ETF ITA

This fund, with a net asset worth $11.82 billion, offers exposure to 39 U.S. companies that manufacture commercial and military aircraft and other defense equipment. Its top six holdings include RTX (15.80%), BA (7.92%) and GD (4.60%).

ITA has surged 39.5% year to date. The fund charges 38 bps as fees.  

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This article originally published on Zacks Investment Research (zacks.com).

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