The Betashares Global Defence ETF (ASX: ARMR) is one of the best-performing ASX ETFs so far in 2025. Is the best offence a good defence?
ARMR ETF
The ARMR ETF is a relatively new addition to the ASX, listing in October 2024.
That means we don’t have a long-term track record to assess here, but the early performance has set a fast pace. Since January 1st, ARMR has returned around 19.5%, and since listing in October it’s more than 33%.
For comparison, the iShares S&P 500 ETF (ASX: IVV) is down about 15% year-to-date.
So, what’s inside the ARMR ETF?
First off, this is not an ETF for anyone interested in ethical investing. The top 10 holdings reads like a list of excluded companies from most ethical ETFs. For the purpose of this review, we’re just concerned with the investment quality of the ETF.
ARMR holds up to 60 of the world’s leading military and armament companies, including the likes of Lockheed Martin Corp (NYSE: LMT) and Palantir Technologies Inc (NASDAQ: PLTR).
Most of the companies are involved in the aerospace and defence sector, but there are also companies across software, consulting, and other adjacent industries. There are really only two rules for inclusion in the ETF.
The first is that the company must derive at least 50% of their revenue from defence equipment and technology. The second is that they must be headquartered in a NATO member or allied country.
The majority (60%) of holdings are based in the US, with most of the remaining companies based in Western Europe with a few exceptions.
So, with such a strong performance over the last 6 months, is the ARMR ETF a buy?
A few reasons for caution
It goes without saying that past performance is not an indicator of future performance. So, putting aside the returns, what else can we look at to get a sense of the quality of this ETF?
Fees: ARMR charges a 0.55% management fee. That’s a pretty standard rate for a thematic ETF, but high compared to most index ETFs.
Net assets: The ARMR ETF has around $52 million under management. That’s lower than what we’d ideally want to see, but keep in mind this ETF hasn’t been around long. Low net assets suggest the ETF may not be profitable for the fund manager, which raises concerns that it could be scrapped. Ideally, we like to see net assets over $100 million.
Concentration: There’s serious concentration risk in this ETF. Not because of the number of holdings (60 is quite a lot) but because they’re all in the same industry. They’re also concentrated geographically, with most in the US. Like any thematic ETF, you have very little diversification. An investment in this ETF is a bet on the defence sector. If you were thinking about investing in this ETF, you’d want it to be a satellite holding, not part of your core portfolio.
PR risk: Defence is a highly emotive and controversial industry. The companies that make up this ETF might be benefiting from several ongoing conflicts and threats around the world, but they’re highly exposed when things don’t go as planned. Just about every company in this ETF has at some stage been boycotted, protested, and dragged through the media. PR risk is real for these companies.
Final thoughts
Personally, this isn’t the kind of ETF or sector I want exposure to. But, if performance is what matters to you and you’re not worried about how it’s achieved, the ARMR ETF looks like one worth putting on the watchlist for a thematic investment. Unfortunately, we’re living in a world where conflict always exists, and there’s a large amount of uncertainty about the future. These companies may be ones that benefit from that environment.
If you’re interested in ETF investing and how to pick the best ones, check out our free online Beginner ETF Investing course.
