Defense ETFs Struggle as Trump's Unpredictable Rhetoric Roils Markets

Defense exchange-traded funds, typically considered beneficiaries of wartime uncertainty, have struggled over the past month as U.S. President Donald Trump's unpredictable moves following the Middle East crisis pushed market volatility to extremes. Despite heightened geopolitical risks, the traditional formula for defense stock investing has been upended by what analysts call "Trump risk." According to Koscom ETF Check data released Tuesday, only 2 of 15 defense-themed ETFs listed on Korean exchanges posted gains over the past month. PLUS K Defense, the nation's largest defense ETF with net assets of 1.803 trillion won ($1.3 billion), fell 4.32% during the period. Other major defense ETFs followed suit, with TIGER K Defense & Space dropping 5.27%, KODEX Defense TOP10 declining 4.22%, TIME Global Space Tech & Defense Active falling 1.33%, and SOL K Defense losing 3.75%. These losses would have been steeper had it not been for a strong rally over the past week. In the most recent week alone, PLUS K Defense gained 4.70%, TIGER K Defense & Space rose 3.99%, KODEX Defense TOP10 added 4.12%, TIME Global Space Tech & Defense Active climbed 4.50%, and SOL K Defense advanced 4.74%. Trump's erratic statements lie at the heart of the underperformance. Following a sudden attack on Iran, global markets swung wildly as news alternated between negotiation progress and ultimatums. As a result, even defense stocks—traditional beneficiaries of geopolitical tensions—failed to maintain steady gains, instead experiencing sharp swings that eroded returns and ultimately led to losses. The damage from extreme volatility was most pronounced in leveraged products that track twice the index returns. Over the past month, PLUS K Defense Leverage and KODEX Defense TOP10 Leverage plunged 11.27% and 12.13% respectively—nearly three times the losses of their non-leveraged counterparts. Without a clear directional trend, the seesaw movements triggered a "negative compounding" effect that eroded portfolio values. The two ETFs that posted gains are not traditional defense plays. RISE Korea Strategic Industry Active, which returned 3.43% over the month, has more than 35% of its holdings in semiconductor giants Samsung Electronics (005930.KS) and SK hynix (000660.KS). KoAct Palantir Value Chain, which gained 4.97% over the same period, focuses on the software and semiconductor ecosystem centered on Palantir. Individual defense stocks also failed to capitalize on more than a month of war-related developments. According to Korea Exchange data, Hanwha Aerospace (012450.KS), a leading Korean defense contractor, rose just 3.63% from March 3—the first trading day after the U.S. attack on Iran—through Tuesday. Korea Aerospace Industries (047810.KS) fell 3.64% over the same period. Following news of a two-week ceasefire, Hanwha Aerospace shares closed Tuesday at 1.484 million won, down 3.45% from the previous session. Hyundai Rotem, another defense stock, also declined 2.13%. "Rather than blindly trusting defense stocks based solely on war or conflict developments, investors should carefully evaluate earnings fundamentals," a securities industry official said.

Defense ETFs Struggle as Trump's Unpredictable Rhetoric Roils Markets

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