Spending moderated after the initial burst following the outbreak of war, but has reaccelerated sharply upon Donald Trump's return to the White House. Credit: iStock
Defence sector-focused funds have amassed a total $83bn in assets by the end of 2025, an all-time high according to data from Morningstar.
The outbreak of war between Russian and Ukraine exactly four years ago ushered in a new wave of spending by European governments, in particular.
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This spending moderated after the initial burst following the outbreak of war, but has reaccelerated sharply upon Donald Trump's return to the White House following his 2024 election win.
Trump has been insistent that other NATO members spend more on defence and has indicated the US is no longer prepared to shoulder so much of the cost of NATO's military deterrent.
Kenneth Lamont, principal of manager research at Morningstar, said: "While assets under management in defence strategies rose steadily in the year following the initial invasion in 2022, the most significant inflows occurred after the 2024 US election.
"Investor interest intensified as US policies - notably stronger signals on NATO burden‑sharing - prompted moves by European capitals to accelerate rearmament and capability development, reinforcing a structural shift in military budgets and procurement trends."
Lamont added that as US support for Ukraine has fluctuated, geopolitical attention has shifted to other regions, including the Middle East, Arctic, and Latin America.
"Persistent uncertainty over the war's duration, evolving NATO dynamics, and new areas of strategic competition mean defence spending remains high on the agenda for governments and investors alike," he added.
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Michael Field, chief equity strategist at Morningstar, said: "The defence sector has gone from strength to strength since the outbreak of the Ukraine war, with several long-lasting tailwinds still pushing the sector on.
"Changing attitudes toward the ethics of investing in defence have attracted new investors, especially across Europe where ESG considerations are far more prevalent."
Field added that the Trump administration's push for higher NATO spending targets has structurally supported the sector's long-term growth.
"Many countries also need to replenish the weapons they have supplied to Ukraine, and for nations like Germany, this could take a decade or longer," he added.
