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EUAD’s 2026 outlook hinges on European defense budget execution and book-to-bill ratios above 1.5x at major contractors.
The fund concentrates in five major primes: Airbus, BAE Systems, Rheinmetall, Leonardo, and Rolls-Royce with minimal diversification.
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Select STOXX Europe Aerospace & Defense ETF (NASDAQ:EUAD) was the cleanest way to own European defense stocks from a U.S. brokerage account in 2025. The fund launched by Tuttle Capital Management on October 22, 2024 solves a simple problem: U.S. investors wanting concentrated exposure to Airbus, BAE Systems, Rheinmetall, Leonardo, and Europe's prime contractors had to assemble that basket themselves across foreign listings. EUAD packages the trade.
The setup worked. EUAD surged 55% by mid-May 2025, becoming the best-performing non-leveraged US-listed ETF in 2025, then climbed roughly 75% year-to-date by early July 2025. Assets crossed $500 million by May 6, 2025. The picture in 2026 is more mixed. Shares closed at near $41 in late April, leaving the fund down roughly 3% year-to-date after a 5% drawdown in April. The one-year return of about 14% still beats most regional benchmarks, but the easy money is behind it.
The single largest driver for EUAD over the next 12 months is whether European governments disburse promised funds. The EU's €800 billion ReArm Europe program and Germany's loosening of its debt brake are the legislative scaffolding behind the rally. Global defense spending is projected to exceed $3.6 trillion by 2030, and Russian drone intrusions on Polish airspace in September 2025 pushed NATO to raise spending targets again.
Watch contract awards and budget execution rates, not headlines. Concrete signals are the German Bundestag's quarterly defense supplemental votes, the European Defence Agency's annual defense data report (typically December), and individual prime contractor order intake in semiannual results. If Rheinmetall, BAE, and Airbus Defence book-to-bill ratios stay above 1.5x through their next two reporting cycles, EUAD's earnings base expands. If those ratios slip below 1.0x, the multiple compression underway in 2026 accelerates.
Oil prices offer a useful proxy for the geopolitical risk premium in defense valuations. WTI is trading near $100 per barrel in late April, in the top 4% of the trailing 12-month range, after a spike above $114 in early April. Sustained oil above $100 typically maps to escalating regional conflict, which historically precedes upward revisions in European defense budgets.
EUAD is a non-leveraged, large-cap focused fund that invests at least 80% of assets in European companies primarily involved in aerospace and defense sectors. In practice, a portfolio dominated by Airbus, BAE Systems, MTU Aero Engines, and Rolls-Royce, with Rheinmetall and French primes filling the top tier. BAE Systems was up 21% year-to-date as of April 1, 2026, offsetting weakness elsewhere in the basket.
Monitor the Tuttle Capital fact sheet and STOXX index methodology notes around each quarterly review. Two mechanics matter most. First, single-name caps drive forced trimming when a holding runs hard, as happened to Rheinmetall after a 200%-plus year. Second, EUAD is a pure-play defense vehicle compared to FEZ and IEUR, so any methodology drift toward broader aerospace would dilute the thesis. Watch for changes in inclusion criteria, not just price action in the top five.
A fund up 75% in seven months trades on momentum until it doesn't. Once the rerating phase ends, performance depends on holdings-level earnings growth and the index's rebalance discipline. JPMorgan maintains an overweight rating on the sector, citing increased spending needs in European countries, but the call now rests on execution at the company level rather than the policy thesis.
If German and EU defense supplementals translate into book-to-bill above 1.5x at Rheinmetall, BAE, and Airbus through year-end, EUAD's 2025 gains hold and extend. If the next index reconstitution forces deep trims on winners while order momentum flattens, the fund's drawdown from its 2025 peak deepens before the next leg up.
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