Canada’s $63.4 billion defence spend opens doors for “second‑derivative” plays
Defence stocks have mostly sat out today’s “two hot wars” – and some portfolio managers see that as a buying window, not a red flag.
According to BNN Bloomberg, Brian Madden, chief investment officer at First Avenue Investment Counsel, said that since “Trump 2.0” began, globalization and the “Pax Americana” have “reset” in a way that makes military spending “structurally higher,” even beyond the current conflict in the Middle East.
He noted that since the outset of the Iran war in February, sectors that usually perform well in wartime – including defence – “haven’t done so,” despite rising geopolitical risk.
Madden told the outlet that the case for defence equities rests on more than one flashpoint.
He pointed to the war in Ukraine entering its fourth year, the US strike on Iran’s nuclear facilities in the summer of 2025, and US President Donald Trump pressing NATO allies to ramp up budgets.
He noted that defence stocks have not “meaningfully” gained during this period, even as spending increases, and said there “could be buying opportunities.” He argued that investors already had a strong case for adding more pure play or hybrid defence exposures to their portfolios before the latest conflict.
Chris McHaney, head of investment management and strategy at Global X Investments Canada, told BNN Bloomberg that the US has long been the top defence spender, but as globalization unwinds, countries are being warned that “the US isn’t necessarily going to be there to defend everyone going forward.”
He said governments are lifting defence budgets for strategic, long‑term reasons that “are not necessarily tied to the day‑to‑day of a domestic economy,” and argued that investors who want to capture a global build‑out should look beyond just US names.
At the alliance level, Reuters reported that NATO’s European allies and Canada increased defence spending by 20 percent in real terms in 2025 compared with the previous year.
Alliance chief Mark Rutte said in his annual report that all allies met or exceeded the original 2 percent of GDP benchmark and that he expects members at the next summit in Ankara to show a “clear and credible path” to a new 5 percent objective by 2035.
Reuters said leaders agreed to target 3.5 percent of GDP for core defence such as troops and weapons, and 1.5 percent for broader measures like cybersecurity and infrastructure, with the United States still accounting for about 60 percent of total NATO defence expenditure.
Canada has now joined that higher‑spending camp.
BNN Bloomberg reported that Canada spent $63.4bn on national defence in 2025 and met its NATO commitment to spend 2 percent of GDP for the first time.
Prime Minister Mark Carney also announced $32bn for military forward operating locations in northern regions of the country.
CBC News similarly reported that the government injected an additional $9.3bn into the Department of National Defence last June, bringing total spending to “just over $61bn.”
That only took Canada over the target “by the skin of its teeth,” and it still ranks in the bottom third of the alliance by effort.
For investors, the composition of that spending matters as much as the headline.
BNN Bloomberg reported that Madden views Canada’s defence procurement profile as a key determinant of investment.
He said Ottawa needs to spend across compensation, bases, facilities, weapons and munitions to meet NATO pledges, yet “in the main, Canada doesn’t make those things” and instead imports them “primarily” from the United States and other NATO partners.
As a result, he said Canadian retail investors who want direct defence exposure may look at large US contractors such as Lockheed Martin or Northrop Grumman Corp.
According to BNN Bloomberg, Madden also highlighted indirect or “hybrid” exposures where defence is one part of a broader business.
He pointed to Bombardier Inc. and CAE Inc. as examples of Canadian companies with both civilian and defence ties.
He said engineering and construction firms such as WSP Global, AtkinsRéalis, and Aecon could benefit as military spending on ports, airstrips, housing, and bases rises, arguing that while they are “not pure plays on defence,” they are still in the supply chain and function as a second‑order play on the theme.
Policy changes could deepen that pipeline.
The Financial Post reported that the federal government’s Defence Industrial Strategy, released in February, aims to support NATO’s new 5 percent goal by 2035 and envisions annual defence expenditures that could rise toward $150bn.
The Post said Ottawa wants 70 percent of that spending to go to Canadian companies, using a “Build‑Partner‑Buy” framework that favours domestic suppliers but still accepts that some capabilities – including the roughly $27bn F‑35 fighter‑jet deal with Lockheed Martin Corp. – will remain offshore.
Defence is also evolving well beyond traditional weapons.
McHaney told BNN Bloomberg that investing in the sector “doesn’t have to mean weapons,” and pointed to cybersecurity, AI and drone technology as areas likely to attract a growing share of defence budgets.
That aligns with the Financial Post’s reporting that Ottawa has identified “sovereign” capabilities such as space‑based surveillance, AI, ammunition and underwater robotics as priority niches for Canadian firms.
Yet not every client will want in.
BNN Bloomberg reported that some investors now apply an environmental, social and governance lens and may hesitate to allocate money to defence at all.
Madden said “retail investors need to decide whether that’s going to be the guiding factor” and called it a “morality judgment,” noting that some might prefer to focus on cybersecurity instead of traditional defence companies.
He added that “those who overlook some of these sectors might be leaving money on the table,” but said that is “a perfectly valid decision” as long as it is made “with eyes wide open.”
