The Vanguard S&P 500 ETF (NYSEARCA:VOO | VOO Price Prediction) is the most popular in terms of size, with over $775 billion in total assets under management. It has the same weightings and holdings as the S&P 500 index and an exceptionally low expense ratio of just 0.03%.
You pay just $3 annually per $10,000 for an ETF issued by Vanguard that tracks the benchmark. And when an ETF is this big, you’ll have no issues with liquidity and slippage. It’s a great deal, and you’d be making a mistake by not taking it.
At the same time, you’d also be making a mistake by not having any satellite holdings to boost your overall returns. Certain megatrends in the market can go on for far longer than you’d think. This has allowed ETFs to outperform the VOO massively at times, with the potential to keep outperforming next year and potentially the year after.
Here’s one.
The ETF that trounced VOO’s returns this year
Select STOXX Europe Aerospace & Defense ETF (BATS:EUAD) tracks the Europe Total Market Aerospace & Defense Index before fees and expenses. It specifically targets exchange-listed common stocks or American Depository Receipts (ADRs) of European companies that derive at least 50% of their revenue from aerospace and defense.
The EUAD ETF is up 84.34% year-to-date against the VOO’s 11.73%. That’s a 7.19x outperformance.
You may have heard of the “make them pay” phrase if you’re a political person. President Donald Trump used the phrase to refer to him pressing European countries and other allies to bump their spending to meet the 2% GDP spending target. This year, the spending target was increased to 5%.
Even before the new spending commitment, European countries began rearming in early 2022. As America’s support for European security started waning from their perspective, they’ve accelerated it even more. European companies engaged in defense have been the biggest beneficiaries.
The companies driving the gains
The EUAD ETF holds 13 stocks. It’s not the most diverse ETF, but all 13 are strong European companies and are unlikely to disappoint you long-term.
The biggest holding is the Dutch company Airbus (OTCMKTS:EADSY) at 23.95%. The returns have been stellar as the company has overtaken Boeing, with many airlines preferring its jets.
German company Rheinmetall (OTCMKTS:RMNBY) comes second with a 15.85% weight. You could call this stock Europe’s Palantir, as it has delivered monumental returns in a very short amount of time. RMNBY stock is up over 2,274% in the past five years.
Those gains are substantiated by the company’s Weapons backlog surging 156% year-over-year in the first half of this year.
By mid-2026, the EUR 65 billion backlog can double. Rheinmetall’s CEO said the company “currently has an order volume of EUR65 billion and will quickly rise to EUR70, EUR80 billion, and then EUR120, EUR130 billion in order backlog.”
British aerospace and arms company BAE Systems (OTCMKTS:BAESY) has a 12.42% weighting and is also on a stellar rally.
French companies Thales SA (OTCMKTS:THLLY) and Safran (OTCMKTS:SAFRY) constitute 11.47% and 10.1% of the fund, respectively.
All of its holdings have been standout performers in 2025.
Can EUAD keep going?
I’d expect EUAD to keep outperforming due to the nature of this megatrend. NATO is unlikely to reset its target back below 5%, even if tensions in Eastern Europe were to calm down tomorrow. The U.S. is shifting its bandwidth to the Asia-Pacific region, but has been unable to fully do so due to conflicts breaking out in Europe and the Middle East.
However, most analysts believe it is long overdue for that to happen.
In turn, Europe is looking at a long-term military build-up and self-sufficiency. European defence names are riding a multi-year capital-expenditure wave, not a speculative blip. Expect double-digit top-line growth and margin expansion to continue through 2026 and well beyond, with pull-backs more likely to be bought than sold.
And if that wasn’t enough, there is a slight structural bias towards a firmer Euro as the U.S. finally restarts interest rate cuts and the currency re-adjusts. At the start of the year, the USD and EUR were almost at parity, but today, 1 EUR can buy 1.16 USD. As a result, European companies are valued more in your dollar-denominated portfolio.
All things considered, EUAD is a solid satellite holding. The expense ratio is 0.50%, or just $50 per $10,000.
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