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ARK Space & Defence Innovation UCITS ETF (ISIN: IE000AON7ET1)
In what might be the most telling ETF launch of Q4 2025, ARK Invest brought its Space & Defence strategy to European investors on October 23rd. And the timing? Impeccable.
The Numbers That Matter
Global military spending hit $2.72 trillion in 2024 – a 9.4% real-terms increase and the steepest year-on-year jump since the Cold War ended. Europe just overtook East Asia as the second-highest spending region for the first time in decades. Poland is spending 4% of GDP on defence. Germany has crossed €100 billion. NATO countries have agreed to hit 5% by 2035.
The US FY2026 defence budget request? $892.6 billion. That's approaching $1 trillion, and Congress is debating going higher.
This isn't about geopolitics. This is about what happens when defence becomes the one budget line item with bipartisan support in a divided government.
What ARK Is Actually Buying
Here's where it gets interesting. ARKX (the US version, which this UCITS mirrors) doesn't own Lockheed Martin or Northrop Grumman. The top holdings tell a different story:
• Kratos Defence & Security Solutions – unmanned systems and directed energy
• Rocket Lab USA – small satellite launches at $7M per mission (vs. $62M for traditional launchers)
• Teradyne – semiconductor test equipment (the picks and shovels for chip manufacturing)
• Iridium Communications – LEO satellite constellation
• Archer Aviation – electric vertical takeoff and landing (eVTOL)
This isn't your grandfather's defence portfolio. These are dual-use technology plays where the same innovation serves both SpaceX and the Space Force, commercial logistics and military supply chains.
The Thesis: Software Ate Defense
Cathie Wood's pitch is straightforward: “The world's leading militaries are moving from industrial-era hardware to intelligent, software-defined systems that are smaller, cheaper, and far more adaptable.”
Translation: The Defence Department is finally going through its “cloud migration” moment. Twenty years late, but with significantly larger checks.
Consider what's actually being funded in 2025-2026 defence budgets:
- Hypersonic missile development (decision windows measured in minutes, not hours)
- Autonomous systems that don't require 18 months of pilot training
- Small satellites you can launch by the dozen instead of building one $2 billion asset
- AI-driven targeting and sensor fusion that processes battlefield data in real-time
The Ukraine conflict essentially became the world's largest field test for commercial drone technology, autonomous systems, and distributed warfare. The procurement officers noticed.
Why European Investors Get This First
The UCITS structure matters here. ARK filed this for European investors because:
1. European defence budgets are growing faster than US budgets (percentagewise)
2. Article 8 SFDR classification allows ESG-conscious institutions to participate (0% controversial weapons, excludes fossil fuel companies >5% revenue)
3. 0.75% expense ratio positions it between active management and passive defence ETFs
But the real kicker? ARK crossed $1 billion AUM in Europe this year and is explicitly telegraphing “a number of highly innovative products in the pipeline” for Q4 and 2026.
This isn't a one-off. This is ARK establishing beachheads in European capital pools ahead of what they clearly believe is a multi-year defence modernization supercycle.
The Uncomfortable Part
Let's address the obvious: betting on defence spending feels different than betting on genomics or fintech innovation. ARK has clearly thought about this, hence the ESG overlay, the “dual-use technology” framing, and the focus on companies that serve both civilian and military markets.
But strip away the marketing and you're looking at a fund that performs better when geopolitical tensions remain elevated, when NATO budgets keep climbing, and when governments prioritise deterrence over... basically everything else.
The fund's success is inversely correlated with world peace. That's not a value judgment – it's a risk factor that should be in every prospectus.
The ETF Infrastructure Play
From an ETF operations perspective, this is fascinating. ARK is:
- Bringing a 4-year-old US strategy (ARKX launched March 2021) to Europe via UCITS wrapper
- Using active management to navigate a sector undergoing rapid technological disruption
- Targeting institutional capital that couldn't touch pure-play defence stocks due to ESG mandates
- Leveraging regulatory arbitrage (Article 8 classification lets them market to sustainability-focused allocators)
This is sophisticated product engineering. They've created an on-ramp for capital that wanted defence exposure but needed ESG air cover.
The Index Provider's Dilemma
Here's what makes this launch particularly notable for those of us in the index and ETF data space: there is no good benchmark for “defence innovation.”
Traditional aerospace & defence indices are heavy on legacy contractors. Tech indices miss the defence contractors. ESG indices exclude half the sector. ARK's solution? Active management with proprietary stock selection.
What This Signals
When ARK launches a European defence ETF in late 2025, after ARKK returned 23.4% YTD and regained credibility post-2021 carnage, it tells you:
1. Smart money thinks the defence modernisation cycle is multi-year, not a 2024-2025 headline trade
2. ESG frameworks are getting flexible enough to accommodate “responsible defence investment”
3. Dual-use technology is the new infrastructure trade (serving both commercial and government markets)
4. European capital allocators want exposure but need it wrapped properly
The Bottom Line
Is ARKX the right way to play defence modernisation? That depends entirely on:
- Your view on sustained European/NATO defence spending through 2030
- Your belief in ARK's active management ability to pick technology winners
- Your comfort level with concentration risk (this is 30-35 stocks, not 300)
- Your institutional constraints around defence sector exposure
But as a signal? It's loud. When Cathie Wood brings her innovation thesis to the military-industrial complex, and structures it for European ESG mandates, she's reading the same defence budget tea leaves we all are.
The difference is she's turning conviction into product launches.
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