As nations worldwide increase their defense spending and cybersecurity threats multiply, the U.S. Global Technology and Aerospace & Defense ETF (ticker: WAR) is drawing attention for its comprehensive approach to defense sector investing. By combining traditional aerospace and defense holdings with significant allocations to cybersecurity and data infrastructure, this exchange-traded fund (ETF) provides advisors and their clients with exposure to both current and emerging security technologies.
As defense strategies evolve, the U.S. Global Investors WAR fund offers a solution for those seeking to invest in companies working to protect nations and their interests. In an interview with The Wealth Advisor’s Scott Martin, Frank Holmes, CEO and CIO of U.S. Global Investors, explains how the fund helps advisors capture opportunities across the full spectrum of modern defense technology, from traditional aerospace to cutting-edge cybersecurity solutions.
A Strategic Response to Global Security Needs
The WAR ETF emerged from Holmes’s firsthand observations of increasing military activity in Northern Europe. While developing data centers for HIVE Digital near the Arctic Circle, Holmes witnessed a dramatic shift in local military presence. In what is normally a quiet town, Holmes noted that “for the past two years, when you go there, the hotels are all packed with military training. That to me said there was a new world happening.”
His observations coincided with significant changes in European defense dynamics. Sweden’s North Atlantic Treaty Organization (NATO) membership opened new opportunities for American defense companies in a market previously dominated by domestic manufacturer Saab. Meanwhile, pressure is mounting on NATO members to increase military spending to 2% of GDP, with warnings of potential U.S. withdrawal from the alliance if targets aren’t met. “The only country showing real strong leadership has been Poland,” Holmes notes. “The rest are going to spend. That means there’s wind hitting the sail for defense.”
The combination of direct observations and shifting geopolitical realities convinced Holmes that a new investment approach was needed. “I said we must come up with a fund based on this,” he explains, leading to the development of an ETF focused on the future of defense technology.
Smart Beta 2.0: A Sophisticated Approach
At the heart of WAR’s methodology is what Holmes calls “smart beta 2.0,” a more comprehensive approach to portfolio construction than traditional factor investing. “Smart beta 1.0 is just a few factors for picking stocks,” Holmes says. “What we have found is it’s not just those five factors that dominate when it comes to stock picking—it is the portfolio construction as well.”
The investment approach combines momentum and mean reversion factors. “When you look in the quant world, it’s very binary,” Holmes notes. “There are two factors, and there are laws of physics. You’re looking for momentum. Are you getting revenue per share growth year over year rising? Now, the other part of it is mean reversion. Am I buying a stock with the lowest EBITDA ratio or priced earnings?” The balanced approach allows the fund to identify companies showing both growth potential and value characteristics, providing a more nuanced exposure to the defense sector.
Portfolio Construction and Holdings
WAR’s strategic allocations target four pillars of modern defense capability: cybersecurity, data infrastructure, advanced semiconductors, and aerospace dominance. Approximately 28% of the fund is allocated to cybersecurity, responding to rapidly growing demand in this sector. Another significant portion is invested in data centers, positioning the fund to benefit from the AI boom. The portfolio also includes semiconductor companies, with Nvidia being a notable holding. The largest allocation, at 31%, goes to aerospace companies.
The fund maintains a strong domestic focus, with 83% invested in U.S. companies and 7% in U.K. firms. The allocation strategy capitalizes on America’s technological leadership in defense while providing targeted international exposure. The emphasis on U.S. companies positions the fund to benefit from increased NATO spending, as European allies typically turn to American defense contractors for major military acquisitions, Holmes says.
Defense Manufacturing and Economic Growth
The defense sector’s economic impact extends beyond security considerations into high-skilled job creation and manufacturing growth. Holmes points to positive PMI (Purchasing Managers’ Index) indicators in defense-related manufacturing, particularly in Dallas, where readings are “going to be over 50% and probably running 53%, which is very positive because it means high-paying jobs.”
The strategic importance of domestic defense manufacturing becomes clear when considering both economic and security implications. “When you’re manufacturing anything that has to do with military or security or homeland security, it’s an extremely well-paid job,” Holmes explains. These positions represent what he sees as essential American jobs that cannot be outsourced: “You cannot offshore. You can’t give it to an AI. Those are going to be American jobs for Americans.”
This manufacturing strength ties directly to the fund’s emphasis on U.S. companies. With increasing pressure on NATO allies to boost defense spending and a growing need for advanced military technology, American defense manufacturers are well-positioned to capture a significant share of this expanding market. The WAR ETF’s portfolio construction reflects this understanding of both the security landscape and the underlying economic fundamentals driving the sector’s growth.
Technology and Innovation Focus
Holmes sees particular promise in the intersection of defense and technological innovation, especially as military modernization accelerates. Recent developments in chip technology, particularly Nvidia’s H100 and H200 chips, are driving what Holmes calls “an epic acceleration in military innovation.” The fund recognizes the expanding role of companies such as Palantir, which has evolved beyond data collection into cyber defense, reflecting the evolving nature of security threats and solutions.
The innovation focus extends beyond traditional defense contractors to companies developing dual-use technologies. Data centers, for instance, serve both civilian and military applications, with locations such as northern Sweden becoming strategic hubs for both commercial computing and defense operations. The convergence of civilian and military technology development, particularly in AI and high-performance computing, represents what Holmes sees as a fundamental shift in how nations approach defense capabilities.
The Human Element: Security as a Fundamental Need
Holmes connects the fund’s mission to broader societal concerns, referencing Maslow’s Hierarchy of Needs: “At the very base of those human needs is that you have to feel safe: physically, emotionally, financially.” The fundamental need for safety extends beyond individual security to national defense, influencing both personal investment decisions and government policy.
Recent global events, from cybersecurity threats to geopolitical tensions, have heightened awareness of security needs across all sectors. The WAR ETF’s approach acknowledges a shifting global environment and combines traditional defense capabilities with an emphasis on nascent technologies that help nations and corporations protect their interests in an increasingly complex world.
Moving Forward
For financial advisors seeking to position client portfolios for evolving global security needs, WAR offers a sophisticated approach to defense sector exposure. Through its smart beta 2.0 methodology and quarterly rebalancing, the fund aims to capture opportunities across both established defense contractors and developing security technology leaders. After 18 months of rigorous testing and analysis, U.S. Global Investors designed the fund to adapt to changing security priorities while maintaining disciplined portfolio construction.
The fund’s broad interpretation of security—encompassing everything from aerospace manufacturing to cybersecurity and AI infrastructure—provides advisors with a comprehensive tool for accessing the defense sector. As nations increase their security spending and technology continues to reshape defense capabilities, WAR positions advisors to offer clients exposure to both current defense priorities and future security innovations.
To learn more about the U.S. Global Technology and Aerospace & Defense ETF (NYSE: WAR), please visit www.waretf.com. All applicable information, risks, etc. can be found on the website.
