The latest IG Group Client Sentiment Study was released this week. It looks at clients’ outlook on their financial goals and markets, highlighting that UK clients included defence in their top three growth sectors.

After Germany and the EU agreed to hike defence spending, amidst growing geopolitical tensions, UK retail investors believe that defence will outperform all other sectors over the next six months. This is the finding of the latest biannual sentiment tracker from UK-headquartered investing and trading platform IG.

It is the first time since the survey began that defence has taken the top spot – driven by multiple catalysts that have lifted sector performance this year – while AI has slipped into second place.

IG asked 1,800 UK investors to name the three sectors which they believe will deliver the strongest growth over the next six months. Defence and military led with 55 per cent, ahead of AI-related industries (45 per cent) and semiconductor equipment (29 per cent).

Six months ago, AI narrowly outpaced defence by 40 per cent to 37 per cent. However, since then a combination of heightened geopolitical instability and commitments from NATO members to increase military spending has seen a spike in capital inflows into the defence industry. At NATO’s June summit in The Hague, members committed to raise spending to 5 per cent of GDP by 2035.

Defence stocks across the world have soared in value in 2025. In the UK, BAE Systems (59 per cent), Rolls Royce (68 per cent) and Babcock (106 per cent) have all seen significant returns year-to-date while in Europe, after Germany’s reform to its debt brake in March to allow for higher defence spending, industrial tech heavyweight Rheinmetall AG’s share price has jumped by 192 per cent. French multinational aerospace and defence corporation Thales Group is also up 74 per cent on the year.

IG’s latest survey also shows that sentiment towards the FTSE 100 is now at its strongest level, with 73 per cent of IG clients saying they expect the index to make positive returns over the coming six months, up from 69 per cent in December 2024.

“While AI sentiment remains bullish, the drivers behind the defence sector are stronger than ever – and investors are clearly responding to that momentum,” Chris Beauchamp, chief market analyst at IG, said. “The rise of the AI industry over recent years has been extraordinary, but in 2025, cracks have started to show. April’s US tariffs exposed the sector’s fragile reliance on international supply chains, while intensifying competition from China is adding pressure.”

“In contrast, defence appears to offer more certainty. Government spending commitments are increasing, and the broader geopolitical backdrop shows no sign of easing. For many investors, defence now looks like a more resilient growth story, especially as concerns about stretched tech valuations continue to grow,” Beauchamp continued.

A number of investments managers and banks, such as ABN AMRO and Deutsche Bank, have ramped up their defence investment efforts recently. ABN AMRO is committing €10 million ($11.43 million) to the Keen Venture Partners’ European Defence and Security Tech Fund. BNP Paribas Asset Management has also announced a new fund to capitalise on the new investment landscape. See here and here.

The IG Group Client Sentiment Study is a bi-annual study which measures clients’ sentiment, confidence, concerns as well as their outlook on financial goals, ambitions, financial markets, portfolio performance and future trading intentions. The survey was carried out between 11 and 22 June 2025.