Defence becomes 2025's most-popular thematic investment

Source: Trustnet

Defence ETFs were the most-bought thematic investment in Europe during the first half of 2025, attracting $7.87bn in net inflows across global and regional strategies, according to ARK Invest Europe.

The surge helped drive total European thematic UCITS ETF inflows to a record $8.73bn year-to-date, marking a sharp reversal from $308m in net outflows over the whole of 2024.

Global defence ETFs accounted for $4.81bn of the inflows, while European defence ETFs captured $3.05bn. ARK Invest said this shift indicates defence’s “evolution from a tactical trade to a structural portfolio allocation”.

European defence-themed investments have become popular in 2025 as rising geopolitical tensions, including Russia’s invasion of Ukraine, NATO’s new defence spending commitments and European nations boosting military budgets, have heightened demand for defence equipment and the industrial capacity to manufacture it.

Artificial intelligence remained a dominant theme, with AI ETFs bringing in $904m in net inflows. Demand was driven by advances in large language models, robotics and autonomous technologies.

Cybersecurity funds recorded $318m in net inflows, recovering from $311m in outflows during the first half of 2024. The rebound highlights growing recognition of digital security as a structural necessity for governments and businesses amid rising digital threats.

Clean energy ETFs posted $307m in outflows, as stalled policy momentum led investors to reallocate capital toward areas with more defined economic moats such as nuclear and grid infrastructure.

Reflecting this sentiment, uranium ETFs ranked fifth by inflows, taking in $253m as interest in nuclear power grew.

Healthcare innovation ETFs saw $279m in net outflows on investor caution around legacy biotech companies with uncertain drug pipelines and reimbursement risks. Investor attention is shifting toward AI-led healthcare platforms perceived to offer faster innovation and scalability.

Electric vehicle and battery technology ETFs posted $203m in outflows amid declining subsidies, softening demand, production bottlenecks and concerns over supply chains for battery raw materials.

Rahul Bhushan, global head of index in Europe at ARK Invest, said: “After a cautious 2024, it’s evident that investors are re-engaging with innovation themes that offer clearer earnings visibility and resilience in an increasingly complex macro landscape.

“We’re seeing investor conviction in megatrends with structural tailwinds, particularly defence, AI and energy security. Thematics are no longer just tactical bets, they’re core strategic exposures.”