Canada NATO spending, Iran war open opportunities for investors, analysts say

A pair of Lockheed Martin F-35 Joint Strike Fighters are shown in this undated handout photo.

With global hostilities rising, experts say investors should take a fresh look at defence companies.

The defence industry is much broader than weapons-focused firms. Investing professionals say there are a range of options for retail investors to gain exposure to the sector, depending on their comfort level -- while some people prefer to steer clear of the industry for political or ethical reasons.

“Yes, we have these two hot wars going on, but I think we’ve had a reset of globalization and the Pax Americana in a significant way since Trump 2.0 began, such that military spending is going to be structurally higher,” said Brian Madden, chief investment officer with First Avenue Investment Counsel.

Since the outset of the Iran war in February, he said certain parts of the market that typically perform well during times of conflict haven’t done so, including defence companies.

Madden said the case for defence stocks goes beyond the current conflict in the Middle East and highlighted factors including the war in Ukraine continuing into its fourth year, the strike on Iran’s nuclear facilities by the U.S. in the summer of 2025, and U.S. President Donald Trump pushing NATO members toward increasing defence spending.

With defence stocks not meaningfully gaining during the conflict, coupled with longer-standing geopolitical issues and rising defence budgets, Madden said there could be buying opportunities for some.

“I would argue that the case for allocating more of a portfolio to either pure play or hybrid exposures to defence was strong even before this latest conflict broke out,” he said.

Chris McHaney, head of investment management and strategy at Global X Investments Canada, said that historically the U.S. has been the largest global spender on defence, but as the globalization era continues to unwind, the message has been “the U.S. isn’t necessarily going to be there to defend everyone going forward.”

He said that countries around the world have moved to bolster their own military capabilities.

“When you think about defence spending in the context of governments increasing their budgets and allocating more into these areas, these are situations that are more strategic and long-term in nature, and they’re not necessarily tied to the day-to-day of a domestic economy, for example,” he said.

For investors looking to capitalize on the theme of a global defence build-out, McHaney said many countries are increasing spending, not just the U.S., and investors should consider global exposure.

And investing in defence doesn’t have to mean weapons. Areas like cybersecurity, AI and drone technology could be areas for investors to look at, he said, given the degree to which defence spending will be focused on those areas.

In 2025, Canada spent $63.4 billion on national defence and met its NATO commitment to spend two per cent of GDP on defence for the first time. Prime Minister Mark Carney also announced in March that the government is putting $32 billion into military forward operating locations in northern regions of the country.

For Canada to reach its NATO commitments, Madden said it requires spending across different areas like soldier compensation, as well as for bases, facilities, weapons, munitions, and more.

“The problem is, in the main, Canada doesn’t make those things and so mostly we import them from primarily the United States but also other NATO allies,” he said.

As a result, Madden said Canadian retail investors seeking more direct exposure to defence stocks may look to large U.S. defence contractors like Lockheed Martin or Northrop Grumman Corp.

“Where Canadian retail investors might have some exposure would be in the indirect Canadian companies where they’re sort of hybrid exposures to the civilian economy and the defence economy,” Madden said, pointing to names like Bombardier Inc. and CAE Inc.

Companies adjacent to the defence industry, like engineering and construction firms, could also benefit from higher military spending in Canada, he said.

“They’re probably going to get their elbows up and be in the room for some of the bidding on some of this infrastructure Canada is going to need to build to meet this pledge, like ports and air strips and housing for the increase in force and bases,” Madden said.

“So your WSP Global’s and your AtkinsRealis and your Aecon construction ... these kinds of names, they’re not pure plays on defence, but they are sort of in the supply chain in all likelihood, and could be a second derivative of the trade.”

But as global conflicts continue, some are investing through an environmental, social and governance lens and could be hesitant to allocate money to the defence industry.

“I think retail investors need to decide whether that’s going to be the guiding factor in making investment decisions, and then it’s a morality judgment,” Madden said.

Another consideration is whether an investor is comfortable with investing in Canada’s defence supply chain to ensure sovereignty, he said. Some might be more comfortable taking positions in cybersecurity firms instead of traditional defence companies.

Overall, he said it’s a personal decision.

“Those who overlook some of these sectors might be leaving money on the table and that’s a perfectly valid decision on their part. It’s just one that needs to be made with eyes wide open,” Madden said.

This report by The Canadian Press was first published April 7, 2026.

Daniel Johnson, The Canadian Press