Themes Transatlantic Defense ETF (NATO)

The Themes Transatlantic Defense ETF (ticker NATO) is a passively managed exchange-traded fund that holds publicly traded aerospace and defense companies headquartered in NATO member countries. The fund tracks an index of about 90 defense companies based in alliance nations, providing concentrated exposure to companies serving allied military and security spending.

The Themes ETF family launched NATO in October 2024 in response to a geopolitical shift: the return of conventional military rivalry and the corresponding rise in defense spending among NATO allies. For years after the Cold War ended, defense budgets in Europe and North America trended lower, and markets priced defense stocks as stagnant or declining. The past five years have inverted that calculus. Russia’s invasion of Ukraine, China’s military ambitions, and broader calls for NATO members to meet defense-spending targets have pushed military budgets sharply higher. NATO itself is strengthening, with Finland and Sweden joining after decades of non-alignment. This rearmament creates a structural demand for weapons systems, vehicles, aircraft, and electronic warfare equipment—the products of aerospace and defense companies.

NATO’s index—the Solactive Transatlantic Aerospace and Defense Index—identifies companies in that industry headquartered in NATO-aligned countries. The fund holds a mix of household-name defense contractors and smaller suppliers. Large US companies like Lockheed Martin and Raytheon dominate the portfolio, but the fund also holds European manufacturers such as BAE Systems, Airbus, Rheinmetall, and Leonardo, which do substantial business in their home governments and across allied nations. Smaller defense suppliers, including avionics makers, missile-system specialists, and military electronics firms, fill out the portfolio. The index includes about 90 companies, providing broad exposure rather than concentration in a handful of mega-cap players.

The geographic makeup reflects NATO membership. The largest weightings are in the United States (roughly 68% of assets), given the size and scale of American defense contractors, but the fund deliberately tilts toward European issuers (about 32% of assets), capturing the continent’s rearmament and the fact that many allied governments are contractually obligated to buy European-made systems to strengthen intra-alliance coordination. This geographic tilt distinguishes NATO from a simple global defense fund, which might be dominated entirely by US firms.

As a passively managed index fund, NATO simply tracks the published index. The fund holds all (or nearly all) of the companies in the index in proportion to their market capitalization, without active stock-picking or market-timing. This approach is transparent, low-cost, and keeps expenses minimal. The expense ratio is 0.35%, well below the industry average for a sector equity fund, reflecting Themes’ operational efficiency.

The fund trades with tight spreads and offers the liquidity of any exchange-traded security, allowing investors to add or reduce exposure intraday without disrupting the underlying market for individual defense stocks. Holdings are published regularly, making the portfolio composition fully transparent.

Investing in NATO carries sector risk: the fund’s returns are entirely dependent on defense-industry performance. If defense budgets contract or geopolitical tensions ease, demand for weapons and military equipment could decline. The fund also carries geopolitical risk: decisions by NATO members to reduce spending, shift procurement toward allies outside the index, or pursue different strategic approaches could hurt the companies held. Concentration risk is present: the largest holdings represent a substantial percentage of assets, so individual company performance can meaningfully affect returns.

The fund is suitable for investors who believe NATO member defense spending will remain elevated or increase, and who want to capture that theme via a broad index rather than picking individual defense contractors. It is unsuitable for investors with strong pacifist views, those averse to defense-industry exposure, or those betting on a broad reduction in military spending. The low expense ratio and passive structure make it simple to understand and cost-efficient to own.