European equities have rallied in a way that few investors expected a year ago. Germany’s decision to loosen its debt brake, the launch of the EU’s ReArm Europe program, and a wave of higher defense budgets across NATO have all shifted expectations about the continent’s fiscal direction. These policy changes have created a very different backdrop for European markets, and the impact varies depending on how an ETF is built.
ReArm Europe alone represents a major turning point. The initiative aims to mobilize up to €800 billion for defense capability through fiscal flexibility and EU‑backed loans, and it has encouraged member states to expand their own budgets. Germany has taken similar steps by exempting large defense outlays from its debt brake and creating a significant off‑budget fund for infrastructure and climate projects. Together, these moves have signaled a more active fiscal posture across the region.
Defense spending across Europe is rising quickly, with countries such as Poland and the Baltic states committing well above the traditional 2 percent of GDP threshold. This surge has been a powerful driver for European aerospace and defense companies, while the broader fiscal shift and new industrial policy efforts have supported a more constructive outlook for the wider Eurozone economy.
Against this backdrop, the three ETFs below offer different ways to express the same macro theme. Some provide broad exposure to European equities, while others focus more directly on the companies that stand to benefit from the continent’s rapid rearmament.
EUAD: The Pure-Play Defense Vehicle
The Select STOXX Europe Aerospace & Defense ETF (NYSEARCA:EUAD) is the sharpest tool on this list for the defense-spending thesis specifically. It is the only one of the three in which aerospace and defense are the core strategy rather than incidental exposure. The fund invests at least 80% of its assets in European aerospace and defense companies, including BAE Systems, Rheinmetall, Airbus, Thales, Leonardo, Saab, Umb Money Market, and Rolls-Royce.
The mechanism is direct. European governments are signing multi-year procurement contracts, and the companies in this basket are the prime contractors and tier-one suppliers that book the revenue. JPMorgan Chase maintains an overweight rating on the sector, and the fund has drawn enough interest since its October 22, 2024, launch to surpass $500 million in assets. Manager Tuttle Capital Management designed the basket to capture the rearmament cycle without diluting the exposure with U.S. primes.
The performance pattern tells the story of how narrow thematic funds behave. EUAD climbed roughly 75% year-to-date by mid-2025, then kept going. Over the trailing twelve months, shares are up roughly 19%. Year-to-date in 2026, though, the fund is down about 4%. That is the signature of a repriced basket reacting to headline risk: any hint of a ceasefire, a budget delay, or a procurement slip can quickly pull the group lower.
The tradeoffs are concentration and valuation. The basket is narrow, the names have already rerated, and the fund carries minimal income, with a dividend yield near 0.4%. UEAD is a growth-oriented expression of trade policy.
FEZ: Eurozone Blue Chips With Fiscal Leverage
The SPDR EURO STOXX 50 ETF (NYSEARCA:FEZ | FEZ Price Prediction) holds the 50 largest Eurozone companies and tracks the EURO STOXX 50 Index. Because it excludes the United Kingdom and Switzerland, the fund is a purer read on ECB policy and EU-level fiscal programs than a pan-European fund would be. Geographic weights skew toward France, at nearly 33%, and Germany, at nearly 30%, the two countries driving most of the new fiscal and defense commitments.
The connection to the theme runs through sector composition. Industrials account for about 19% of the fund and financials about 22%, the two sectors most levered to a wider European capex cycle. Holdings include ASML at 10%, Siemens at nearly 4%, and Schneider Electric at nearly 3%. Airbus also sits within the index, though it accounts for only 2%. The fund offers exposure to defense-adjacent industrials and to the banks positioned to finance the expansion, with weapons procurement as one driver among many.
FEZ has returned about 23% over the past year and roughly 1% year-to-date, a smoother profile than EUAD because the defense tailwind is spread across a wider earnings base. The caveat is a different kind of concentration: ASML alone accounts for nearly a tenth of the fund, and the index leans heavily on a handful of megacaps. The absence of the UK also means no exposure to BAE Systems or Rolls-Royce, so the defense content is real but partial. Currency risk against the dollar is unhedged.
IEUR: Broad European Equity Beta
The iShares Core MSCI Europe ETF (NYSEARCA:IEUR) treats European fiscal expansion as one of several tailwinds rather than the sole investment case. The fund tracks the MSCI Europe Investable Market Index across large, mid, and small caps and is one of the lowest-cost ways to own developed Europe. Assets sit at roughly $8 billion, and the geographic mix leans toward the United Kingdom near 24%, France near 15%, and Germany at around 13%, with meaningful weight in Switzerland, the Nordics, the Netherlands, and southern Europe.
Sector exposure is the widest of the three. Financials come in at near 23%, and industrials at near 19%, but healthcare, consumer staples, energy, and technology all carry material weight. Top holdings include ASML, AstraZeneca, Novartis, HSBC, and Roche, a lineup that looks nothing like a defense fund. Because IEUR captures UK-listed primes, the portfolio does include some direct defense exposure that FEZ misses, though the weight is modest.
The fund has delivered a roughly 25% gain over the trailing year and about 4% year-to-date, helped by the broader reflation of European equities. Over the past decade, IEUR has returned about 137% on an adjusted basis. The tradeoff is dilution: defense and fiscal beneficiaries are present in the fund, but their signal is muted by the heavy weighting to staples, healthcare, and UK financials. Currency exposure is unhedged across the euro, sterling, and Swiss franc.
Matching the Fund to the View
EUAD is built for investors who want a very direct way to tap into Europe’s rearmament cycle. It is a tightly focused aerospace and defense portfolio, and almost all of its weight sits in a small group of major European contractors. That concentration gives it strong thematic purity, but it also means the fund moves sharply when sector headlines hit.
FEZ works for investors who want broad Eurozone blue‑chip exposure and who see defense spending as one part of a larger fiscal story. Its holdings reflect the region’s industrial, financial, and consumer leadership, so defense and industrial reflation help, but they do not dominate the portfolio.
IEUR is the natural choice for someone who wants the widest and lowest‑cost exposure to European equities. It spreads its weight across the full market, so defense spending becomes one of many supportive forces rather than the central thesis.
If you want, I can also turn this into a slide‑ready comparison or a tighter two‑sentence summary for each fund.
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