Defence stocks with NATO at 75 years old
Investing in the globally critical area of defence has never been so interesting. With the rise of technology as a driving force in security, the HANetf Future of Defence UCITS ETF is up 46% since the lows in October 2023.
IGTV caught up with Tom Bailey, head of ETF Research at HANetf, to discuss how the fund has developed as technology has become a more meaningful force in the global defence sector.
(AI Video Summary)
Discussing the HANetf Future of Defence UCITS ETF
NATO, the military alliance that has been a cornerstone of international security for 75 years, is undergoing transformations to meet the needs of the next generation. This has caught the attention of investors, particularly those interested in defense-related companies. An investment fund called the HANetf Future of Defence UCITS ETF focuses on these types of companies and presents an opportunity to investors.
Tom Bailey, the head of ETF Research for HANetf, explains that NATO was originally formed as a defensive alliance against Soviet Union aggression and to ensure US involvement. However, over time, challenges have arisen as some European members, like Germany, have not met the alliance's target of spending 2% of their GDP on defense. This has led to an increased reliance on the US for defense. But recent events, such as Russia's invasion of Ukraine, have reinvigorated NATO's purpose and prompted European members to prioritise their membership for national security reasons.
What does the ETF consist of?
The HANetf Future of Defence UCITS ETF consists of defense stocks from industrial and cyber sectors. These stocks generate at least 50% of their revenue from defense armaments and are domiciled in a NATO member or a NATO trust member. The fund is regularly rebalanced to include new stocks that meet the index methodology and remove stocks with changed revenue composition or decreasing market caps. This ensures that the fund remains focused on companies at the forefront of defense spending.
Examples of companies in the HANetf Future of Defence UCITS ETF include BAE Systems, the largest UK contributor, and CyberArk Software, a cyber security specialist. The fund also provides investors with the benefit of diversification, as the performances of industrial and cyber stocks are often uncorrelated.
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