Active investors have likely gotten the memo that international stocks are throttling U.S. counterparts in 2025. As of Oct. 6, the MSCI ACWI ex USA IMI Index, which combines developed and emerging markets equities, is higher by 29.2% year-to-date compared to a gain of "just" 15.6% for the S&P 500.

European stocks are major reasons for the resurgence of ex-US fare. The three largest US-listed Europe exchange-traded funds by assets are each beating the S&P 500 since the start of the year with one doing so by a margin of better than 2-to1. Alone, that's impressive and for some investors, the end results are all that matters.

There's nothing wrong with that, but inquisitive market participants may be pondering "What's up with European stocks this year?" It's a question with multiple answers, one of which is defense. For the first time in what feels like an eternity, defense budgets are increasing across Europe, making the industrial sector – home to aerospace and defense equities – one of the continent's best-performing groups this year.

Sure, investors can tap into that trend via broad-based Europe ETFs, many of which are heavily allocated to industrial stocks. Or they can select individual equities. However, the first approach risks dilution via other sectors while the second requires being absolutely right. The Select STOXX Europe Aerospace & Defense ETF (EUAD -2.14%) and the WisdomTree Europe Defense Fund (WDEF -2.67%) could solve those problems by providing dedicated European defense exposure.

Let's see which one of these ETFs is best-suited for Europe's newfound embrace of national defense expenditures.

EUAD: A hidden success story

Experienced investors know that the ETF business is one where end users are often seduced by superficial metrics such as branding and size of an issuer's stable. On those bases, EUAD is an undisputed surprise success story. It's the only product in the sponsor's suite and about two weeks shy of its first birthday, EUAD is a $1.24 billion ETF.

EUAD's hefty assets under management tally is testament to being at the right place at the right time – an attribute not to be understated with new ETFs. Data supports that assertion. Twenty-three NATO members, many of which are European nations, are now spending 2% or more of GDP on defense with the aim of driving that percentage to 5% by 2025 (including defense-related expenditures).

Those increases, necessitated in part by Russia's ongoing war in Ukraine, could be material over the long-term to EUAD's highly focused (it holds just 13 stocks), primarily large-cap lineup. Investors willing to wager that Airbus SE (EADSY -0.20%), Rheinmetall AG (RNMBY -5.06%) and BAE Systems (BAES.Y -2.31%) – stocks combining for about 52% of the ETF's roster – are going to be among the Europe defense spending winners could find EUAD to be a relevant tactical addition to their portfolios.

WDEF enters the conversation

From a performance perspective, it's not yet fair to compare EUAD and WisdomTree's WDEF because the latter debuted in July. That said, investors should expect disparate returns over time between the two Europe defense ETFs because they aren't twins. Actually, they're barely even distant cousins.

Among the reasons direct comparisons between EUAD and WDEF may be futile is the fact that latter holds more than twice as many as stocks as its rival. That gets into another point: WDEF's index allocates 18.63% of its weight to mid- and small-cap stocks, many of which are underappreciated or outright unheard by American investors. WDEF's exposure to smaller European defense names isn't to be diminished because some of those companies are accruing momentum not seen in years.

Additionally, while the bulk of WDEF's holdings, large-, mid- or small-cap, hail from the industrial sector, some of the ETF's smaller-by-market-cap components have "growthy" tech vibes enabling them to capture new business not only in Europe, but around the world.

EUAD vs. WDEF: A tough defense decision

Comparing these Europe defense ETF titans isn't as easy as it appears at first glance and awarding a victor boils down to an investor's preferences and risk tolerances. EUAD has delivered the goods, surging more than 91% year-to-date and offers investors familiarity and a modicum of safety with a primarily large-cap lineup.

That's not to say WDEF is "unsafe." It's not. It merely leans into smaller stocks a bit more than its competitor. That's not a bad thing, particularly at a time when European small-caps are outpacing domestic equivalents by wide margins.

Fee-conscious investors will find the decision-making process easier because WDEF has a slight advantage at 0.45% per year, or $45 on a $10,000 investment, compared to EUAD's 0.50% expense ratio. Just remember that a lower fee isn't a promise of excellent returns.