Fund managers are getting more bullish on defense stocks, with recent conflicts in the Middle East, the Indian subcontinent as well as NATO allies’ pledges to raise defense spending boosting prospects of the arms industry. The sector has seen robust gains this year and analysts suggest the interest in defense will grow further. The MSCI Europe Aerospace and Defense Index (USD) has surged about 70% this year, according to LSEG data, while the iShares US Aerospace & Defense ETF (ITA) has gained more than 25%. The U.S. defense ETF hit a fresh all-time high on Thursday morning stateside, while the European fund has risen to a record high levels, adding almost 6% since June 13 when the Israel – Iran conflict started. The iShares US Aerospace & Defense ETF has gained over 2% since June 13. The uptick in defense stocks has come at a time of heightened geopolitical uncertainty, with U.S. President Donald Trump’s transactional approach to defense and calls for greater spending by partners also fueling a rush into defense assets. “Rising tensions in the Middle East and U.S. intervention have further heightened concerns of a broader regional conflict, driving additional investor interest in the sector and likely prompting a new wave of buying by fund managers,” said Kenneth Lamont, principal or manager research at Morningstar. James Penny, U.K. chief investment officer at TAM Asset Management, said that he has been increasing exposure to defense through active global fund managers, adding that he was focused on rotating into defense stocks around the world, with a focus on European Union defense arms. Fund managers and other industry experts CNBC spoke to said that though the traction in defense stocks started back in 2022 when Russia invaded Ukraine, this year has seen a particularly strong surge in their popularity. Asset managers have almost doubled their allocations to defense stocks since the Russia-Ukraine conflict, data provided by Morningstar showed. Peter Andersen, chief investment officer at Andersen Capital Management, told CNBC that he made the move to pile on defense investments after foreseeing that Trump’s long-standing criticism of NATO member countries not spending enough on defense will continue in his current term. “To me, it was when Trump took office. That was the green light signal,” he said. NATO allies on Wednesday committed to raising their defense spending goal to 5% from 2% of GDP by 2035, marking the alliance’s most decisive move in over 10 years. Andersen has been building his position in a basket of European defense stocks since the start of the year, and added that his conviction in the wider defense sector has only been reaffirmed further given the recent developments in the Middle East and NATO’s move to hike defense spending. Trump had criticized NATO, questioned Article 5 commitments, and temporarily pausing military aid to Ukraine in early March — raising alarm among European governments. “The actions and rhetoric of the Trump administration convinced European leaders that the U.S. security umbrella was no longer guaranteed,” said Tom Bailey, head of research at HANetf. “There was a growing sense that Europe could no longer rely on importing U.S. military equipment and had to achieve ‘strategic autonomy,'” said Bailey. At the same time, after the elections in February 2025, Germany loosened its fiscal rules, lifting interest in the defense space, he added. Bailey added that HANetf’s Future of Defense UCITS ETF, which grants exposure to NATO and NATO+ allies’ defense, saw around $1.3 billion in net new inflows this year alone. Europe is not the only region on market watchers’ radar. HanETF is expecting investor interest to rise in the Indo-Pacific as well. “The Indo-Pacific region is a region full of potential major geopolitical flashpoints,” Bailey told CNBC, citing India’s border dispute with Pakistan, tensions between China and Taiwan, and territorial claims in the South China Sea. Capital Management’s Andersen pointed out that “additional agitation around the world” at this point in time adds on to investor anxiety and inflows. Similarly, Mercer, a global consultant to pension funds, believes that the rush into defense stocks will only continue to grow from here. The recent conflicts raise investors’ awareness further, and “makes you think about defense, defense stocks more often,” Mercer’s U.S. Chief Investment Strategist Jay Love said. “There’ll be growing geopolitical conflict, just different ideologies growing,” Love added. Love, however, noted that although he likes the defense industry, many of these companies’ profit margins have been moderating and they are relatively expensive to buy. “Valuations are not low, and profitability has been mixed and challenged, particularly margins,” he added. When Blackpink kicks off their “Deadline” world tour in Goyang , South Korea, this weekend, they’ll be aiming to top the record-breaking run of their previous tour, which grossed over $330 million and was reportedly the highest-earning in history by a girl group. Projections from Daishin Securities show that the new tour by the four-member group is likely to rake in 600 billion South Korean won ($440 million), according to South Korean outlet e-daily. Blackpink’s concerts are just one example of how K-pop companies are turning to concerts to shore up their balance sheets. Amid a decline in album sales that battered their revenue and tanked their share prices in 2024 , these agencies lost a combined market cap of 35% from the second half of 2023 to the end of 2024, according to a June 3 note by Goldman Sachs. South Korea’s “Big Four” K-pop agencies are all publicly listed. Hybe Corporation is the largest and is listed on the blue-chip Kospi, while SM Entertainment, JYP Entertainment and YG Entertainment are on the small-cap Kosdaq. Live concerts are one way the “Big Four” are addressing the slumping sales of albums, which traditionally form the bulk of the firms’ revenue. Billboard’s midyear Boxscore report revealed that boy group Seventeen, managed by Hybe subsidiary Pledis Entertainment, “essentially doubled its midyear gross for the second consecutive year,” thanks to its Right Here world tour, which ran from October 12, 2024, to February 12 this year. Billboard’s information covers all reported shows between Oct. 1, 2024, and March 31, 2025. The group was the third-highest grossing act in the period, pulling in $120.9 million and an attendance of 842,000 over 30 shows. Five K-pop acts are on Billboard’s top-50 list, up from three in 2023 and 2024 and two in 2022. “K-pop acts on the midyear Top Tours chart brought in a collective $228 million and sold 1.6 million tickets from 78 shows. That marks a 79% increase over the genre’s 2024 showing, which itself was a 93% jump from 2023,” Billboard said. More notably, K-pop concerts defied the broader downtrend in global concert trends . Billboard noted that “this year’s midyear charts are down significantly compared with 2024,” with a 28% drop year over year in touring revenues, although Live Nation CEO Michael Rapino noted that more artists are waiting until the second and third quarters to launch their tours. Higher profit margins Jiwoo Oh, a research analyst at investment firm CGS International, told CNBC that companies are now turning to concerts because the profit margins of live events are higher compared with album sales. By holding concerts, companies also have the opportunity to sell merchandise, which has an even higher profit margin than the concerts themselves. The profit margin for merchandise, she said, can reach as high as 50%. This shift to concerts as a revenue stream can be seen in the companies’ first-quarter results. Out of the four major publicly listed K-pop companies, three saw huge increases in concert revenues. JYP Entertainment was the exception. Most notably, Kospi-listed Hybe Corporation, South Korea’s largest K-pop company by market capitalization, saw its concert revenue surpass album and digital sales in the first quarter of 2025. Concerts accounted for 31% of total revenue in Hybe’s first quarter, surpassing the 27.3% share from music sales. In the first quarter of 2024, music revenue made up over 40% of revenue, while concert revenue stood at 12%. YG Entertainment experienced the largest jump in concert revenue among the four companies, with concert revenue spiking over 270%, reportedly due to world tours from its boy band Treasure and newly debuted girl group Babymonster. The only exception to the trend was JYP Entertainment, which reported a drop in both concert revenue and profit. The company explained in its first-quarter earnings note that this was due to a lack of large-scale concerts by major artists during the period. In line with this surge of concert revenue, K-pop stocks — with the exception of JYP — rose between 60% and over 100% year to date, vastly outperforming the Kospi’s 28% gain and the Kosdaq’s 15.2% increase. CGS’ Oh said that while Hybe and YG are poised to see the largest gains because of the resumption of activities from BTS and Blackpink, respectively, YG is likely to see a higher growth rate because of its smaller stable of artists. YG currently only has three groups in its stable, the smallest bench among all four companies. However, a June 26 note by Morgan Stanley said that they believe that expectations for Blackpink have been “over-reflected” in the share price of YG, adding that the agency’s “high reliance on a single IP and its shallow slate of performers remains a concern.” The dismal performance of JYP was due to investor concern over contract renewals, CGS’ Oh added. Girl group Itzy’s contracts are expected to expire in 2025, while members of boy band Stray Kids are facing the possibility of serving South Korea’s military service. Morgan Stanley’s note echoes this point on JYP, saying that “we believe the stock needs to see more artists contributing to top line growth, and new teams emerge to support longer term growth.” ‘Mega IPs’ lead the way “We believe K-pop is still a growth sector where the leading companies have established a ‘system’ that can repeatedly produce such global Mega IPs and consequentially continue to expand their global audience.” Goldman Sachs Seyon Park and Dan Kim While rising revenue from concerts is likely to lift all companies, some can capitalize on this trend better than others. Goldman Sachs said that investors should look out for companies that have “Mega IPs,” which are groups that can gross an audience figure of over 1.5 million audience per tour. This figure implies the artist has been able to reach beyond K-pop’s traditional target markets and into the Western music scene, it said. “We believe K-pop is still a growth sector where the leading companies have established a ‘system’ that can repeatedly produce such global Mega IPs and consequently continue to expand their global audience,” Goldman added. Currently, only four groups meet this criterion. Goldman has singled out Hybe, saying two of its groups are “on the verge” of becoming Mega IPs. This should bring in fast scaling of concerts and merchandising revenue, and provide stronger evidence that Hybe can repeatedly produce Mega IPs. By contrast, Goldman is more pessimistic on SM Entertainment, citing its lack of “Mega IPs.” The Wall Street bank also sees earnings turbulence in YG, due to its reliance on Blackpink’s activities. A “successful ramp-up of Babymonster is key to seeing multi-year earnings growth,” it added.
