Key Takeaways

Europe’s rearmament isn’t just about ordering more kit - it’s about fixing the bottlenecks that make a credible deterrent possible: ammunition at scale, sensors that see first and systems that keep fleets moving. Three German champions, Rheinmetall, HENSOLDT and RENK, sit at the core of that effort. Together they’re rebuilding depth (stocks), sharpening edge (effects) and hardening resilience (uptime and supply chains) across NATO’s front line.

Rheinmetall: Europe’s arsenal at scale

On 27 August  2025, Rheinmetall opened Europe’s largest ammunition factory at Unterlüß. The €500 million site is slated to ramp to around 350,000 155mm shells annually by 2027. Rheinmetall projects around 700,000 shells per year across its network - a cornerstone contribution toward the European Union’s (EU) goal of 2 million shells a year. To de-risk propellant and shell supply and shorten logistics tails, Rheinmetall is also localising production across the continent with more than €1 billion in joint venture plans in Bulgaria to produce gunpowder and 155mm shells, as well as a new plant in Romania. These moves spread risk and build sovereign capacity where it’s needed most.

What fills those production lines matters too. Beyond shells, Rheinmetall fields a broad effects mix: the Assegai family (High Explosives, smoke/obscurant, illumination/IR illumination, Extended Range options) and Bundeswehr-standard DM121/DM125/SMArt rounds¹ - providing the right product for the mission while keeping logistics interoperable across NATO weaponry.

There is also short-range air defence that’s affordable to sustain. Deterrence fails if you can’t keep the airspace around depots, columns and cities clean of drones and cruise missiles. Rheinmetall’s Skynex and Skyranger 30 systems restore high-volume, low-cost gun-based air defence. Skynex’s programmable 35mm AHEAD rounds create a lethal cloud that’s far cheaper per shot than missiles - key for sustained operations. A six-figure cartridge order (low triple-digit € millions) in 2024 underlined Europe’s demand signal and deliveries of Boxer-mounted Skyranger 30 began with Germany’s verification vehicle in early 2025, with series vehicles to follow.

Ukraine’s experience has reinforced the concept: cannon-based systems (Gepard’s lineage and Skynex’s modernised architecture) have proven invaluable in the drone fight and for close-in cruise-missile defence. That real combat feedback loop is driving European buys now.

Rheinmetall is critical for resilience: Mass shell output (and diversified powder supply) closes Europe’s most acute readiness gap; gun-based Short-Range Air Defense (SHORAD) restores sustainable air-defence depth for the “everything drone” era; and a varied artillery portfolio ensures effects without bespoke logistics.

Deterrence hinges on what you can detect, track and classify, from low-observable drones to salvos at sea.

HENSOLDT: The eyes and ears of resilience

HENSOLDT’s TRML-4D, the beating heart of the IRIS-T SLM air-defence battery, has been fielded at pace for Ukraine and continues to see new orders across Europe². Digital architecture gives fast updates and high-fidelity tracks on tough, low-altitude targets, which is what modern defence needs. At sea, the TRS-4D family equips German Navy surface combatants and will outfit new frigates, with program scope recently expanded. Commonality across land and sea radars simplifies training, spares, and upgrades - classic resilience multipliers.

Air superiority is getting a sensor refresh too. In February 2025, HENSOLDT secured a ~€350 million extension to advance the Eurofighter European Common Radar System, Mark 1 (ECRS Mk1) AESA radar for Germany and Spain, adding capability and laying the path to further evolutions later in the decade. To complement active radars, HENSOLDT’s Twinvis passive radar is moving toward certification with Germany’s air traffic service (DFS), a dual-use step that signals maturity and opens doors for homeland defence applications. Meanwhile, the SPEXER 2000 3D MkIII ground radar continues to scale production for the drone threat.

HENSOLDT’s Kalaetron Attack family brings software-defined, jamming (escort, stand-off, stand-in variants) with multi-target capability, exactly the kind of adaptable Electronic Warfare (EW) Europe needs against learning adversaries.

HENSOLDT is the eyes of resilience: A sensor stack that spans ground-air-sea with common architectures, a credible Counter Unmanned Aircraft Systems (C-UAS) radar line for the saturating drone threat and software-defined EW that updates at the speed of tactics.

RENK: Powering mobility and maritime depth

You can’t deter if your fleets can’t move or stay up. RENK is Europe’s leading supplier of tracked-vehicle transmissions and quiet naval gearboxes, providing the test systems and field services that keep both ready. RENK’s HSWL 354 transmission underpins the Leopard 2 family across 18 countries - Europe’s de facto tank. For modern Infantry Fighting Vehicles (IFVs), the HSWL 256 powers Germany’s Puma and the UK’s Ajax family, translating horsepower into reliable mobility in contested terrain.

On the maritime side, Damen Naval has contracted RENK to supply gearboxes for the Dutch/Belgian Anti-Submarine Warfare frigates, optimised for quiet propulsion. First sets arrive for installation from October 2025, with the first frigate delivery slated for 2028. This is a key anti-sub capability for the North Sea and Greenland–Iceland–UK (GIUK) gap.

Beyond hardware, RENK’s RTS test benches (vehicle, drivetrain, hub-loading and mobile diagnostic rigs) allow armies to do reproducible, Original Equipment Manufacturers (OEM)-spec testing away from the proving grounds, cutting downtime and catching failures before they cascade. Lifecycle services (spares, field repair, overhaul) translate directly into higher availability of Europe’s tank and IFV fleets. RENK is also positioned in Europe’s next-gen heavy armour work via the Main Armoured Tank of Europe (MARTE) initiative, leveraging the Leopard/HSWL experience to accelerate a scalable main battle tank architecture.

Running on RENK creates commonality. Common transmissions and gearboxes simplify spares; test systems and field service raise availability; and quiet propulsion strengthens Europe’s Anti-Submarine Warfare (ASW) posture.

The strategic through-line: capacity, commonality, cost

• Capacity: Unterlüß and the new regional ammunition JVs are Europe’s most concrete answers to the “shell hunger” problem; HENSOLDT’s radar lines and RENK’s test/service infrastructure similarly scale what matters.

• Commonality: TRML-4D/TRS-4D families, Leopard-based transmissions and standardised EW/radar modules keep training, spares, and upgrades manageable across allies.

• Cost: Sustained deterrence needs affordable shots and support. Programmable 35mm for Skynex/Skyranger offers low cost per effect; and Rheinmetall’s CEO has argued scale should reduce platform costs as Europe moves to serial production.

The procurement horizon reflects that logic: Berlin is preparing large multi-year orders: Eurofighters, thousands of Boxers, more IRIS-T and SkyRanger. With delivery stretching over a decade, the sustained demand gives industry confidence to keep investing in capacity.

Europe’s deterrence surge isn’t theoretical anymore, It is bending steel, filling depots, wiring sensors and turning wrenches. Rheinmetall, HENSOLDT and RENK are the practical centre of that shift.

Capitalising on the European defence sector with WisdomTree

For investors, direct exposure to these German defence champions can be gained efficiently through the WisdomTree Europe Defence UCITS ETF ( WDEF). WDEF tracks the price and yield performance of the WisdomTree Europe Defence UCITS Index (WTEUDEFN), an in-house benchmark built from the ground up to capture European companies that derive a meaningful share of revenue from defence.

By concentrating weights according to defence revenue share rather than market capitalisation, WDEF ensures that holdings like Rheinmetall, HENSOLDT, and RENK receive allocations that reflect their strategic importance to Europe’s rearmament. As of 18 September 2025, Rheinmetall represents approximately 14.88% of the index, HENSOLDT around 3.29%, and RENK approximately 2%³. Together, these three firms account for a meaningful share 20.17% of WDEF’s portfolio³, enabling direct exposure to Germany’s industrial core of Europe’s deterrence effort without having to build individual positions.

This makes WDEF not only a diversified vehicle across 24 European defence companies but also a precise tool to access Germany’s most critical defence manufacturers. For investors, this targeted structure translates policy-driven demand and industrial expansion into a transparent, liquid, and cost-effective investment strategy.

Since its launch in October 2024, the WDEF has outperformed global defence ETF peers, reflecting the stronger growth trajectory of European defence companies. The chart below illustrates of the WisdomTree Europe Defence UCITS Index’s performance versus global peers.

Figure 1:Index performance comparison since live calculation

Source: WisdomTree, Bloomberg, from the live calculation date of WisdomTree Europe Defence UCITS Index, 31 October 2024, to 29 August 2025. WisdomTree Europe Defence UCITS Index (WTEUDEFN) calculations are computed in the EUR. Historical returns of other indices are also calculated in EUR. You cannot invest directly in an index. Historical performance is not an indication of future performance and any investments may go down in value.

At a time when investors are actively seeking exposure to Europe’s decade long rearmament cycle, WisdomTree is offering a unique and differentiated way to into this historic defence resurgence. The WisdomTree Europe Defence UCITS Index has a 50% median exposure to European firms, much higher than peers (12-15%)⁴. It also has a lower median exposure to the US thereby positioning the portfolio to benefit from increased defence spending in Europe.

Figure 2: WisdomTree’s strategy has higher revenue exposure to Europe

Source: WisdomTree, FactSet, as of 29 August 2025. "X" sign denotes the arithmetic average of the revenue exposure of the holdings. You cannot invest directly in an index. Historical performance is not an indication of future performance, and any investments may go down in value.

On analysing the estimated long-term earnings growth forecast for WisdomTree versus its peers compared to historical performance over the prior 12 months, we find the WisdomTree Europe Defence UCITS Index’s strong growth potential, alongside performance, positions it ahead of its competitors.

Figure 3: Estimated long-term earnings growth vs. 12-month return

Source: WisdomTree, FactSet, Bloomberg. Est. long term earnings growth as of 29 August 2025. Returns are based on from 29 August 2024 to 29 August 2025. WisdomTree Europe Defence UCITS Index (WTEUDEFN) calculations include back tested data and are computed in the EUR. Historical returns of other funds are based on the underlying indices in EUR term. Backtest disclosure: WTEUDEFN uses the static datasets as of 31 October 2024, which are not redefined retrospectively in the backtest process. Such datasets including the initial universe of companies, and their revenue data, category classification, and companies' ESG assessment, as well as companies' market capitalisation and daily dollar volume requirements. Calculations are using Bloomberg PORT function on and on GTR (gross total return) basis. You cannot invest directly in an index. Historical performance is not an indication of future performance and any investments may go down in value.

Conclusion

Europe’s rearmament is no longer theoretical; it is translating into factories, stockpiles, and procurement pipelines that underpin NATO’s credibility. For investors, this creates a rare opportunity: predictable capital flows, structural demand across munitions, sensors, and mobility, and industrial champions positioned for growth. Vehicles like the WisdomTree Europe Defence UCITS ETF provide efficient and liquid access to this transformation, with meaningful exposure to Germany’s most critical defence companies and a diversified footprint across the continent. Yet the risks must be weighed carefully. Political shifts could slow procurement momentum, industrial bottlenecks in energetics or labour could cap throughput, and geopolitical volatility could either accelerate or compress spending cycles.

¹ Please note – DM121/DM125 – German Bundeswehr standard 155mm shells widely used in NATO. SMArt: is a sensor fused round that hunts and hits armoured vehicles from above.
² TRML-4D — Telefunken Radar Mobil Luftraumüberwachung (“Telefunken mobile airspace-surveillance radar”); “4D” means it measures range, azimuth, elevation and radial velocity (Doppler). It’s HENSOLDT’s AESA air-surveillance/target-acquisition radar used with IRIS-T SLM batteries.
³ FactSet, WisdomTree as of 18 September 2025
⁴ FactSet, WisdomTree as of 29 August 2025