Investment opportunities in defence

Owing to the war in Ukraine, demand for weapons in Europe has soared, but there remains potential upside for traditional arms companies as well as new technology businesses in the cyber security industry. As Tom Bailey, from HANetf says Future of Defence UCITS ETF (NATO) provides exposure to the companies generating revenue from NATO and NATO+ ally defence and cyber defence spending.

(Partial Video Transcript)

NATO's rearmament and defence funding situation

Jeremy Naylor: The US election is now beginning to heat up, with Republican contender Donald Trump entering the debate about NATO and defense funding. Tom Bailey joins us now from HANetf to take a look at the opportunities and investment. Tom, it's an interesting space. We have to look beyond Donald Trump and look at the way in which Western governments have been investing in their defense to support NATO and there's a lot of debate about this as well. Then, of course, we got the geopolitics about what's happening a couple years ago with with Ukraine. We've got the Middle East issue surfacing. We've got concerns about the future of Taiwan and China. So it's clearly an interesting area to discuss. I'm asking the question, where do we start? Because there's quite a lot here, too, to begin picking apart. What do you consider to be the most newsworthy items at the moment to follow to get us into this interview?

Tom Bailey: Yeah, well, it's hard to know how to choose, which is always newsworthy. But I think the most significant in terms of the defense landscape I think really is Trump's comments the other week as rally in South Carolina, where essentially he said that he previously told NATO members that if they weren't spending the 2% GDP commitment on defense, then he would let Russia have their way with them. I think what this raises is obviously the need for for Europe to re-arm, which is what Trump is encouraging with his comments in his own peculiar way. But it does underline what actually is a trend in Europe over the last almost decade now. So, you know, the European Union and EU NATO large members of them have been underspending on defense compared to the 2% of GDP commitment.

It started to change in 2014 following Russia's first invasion of Ukraine when it annexed Crimea and then sponsored separatists in Donetsk and Lugansk. But then also with the full scale invasion in 2022. Europe really started to take its defense commitments much more seriously. We've seen we've seen numerous European native members come out and affirm that commitment to region is 2% go, or in cases like Poland, exceeding it. So what this means is it's a growing area of of of of demand for the defense industry, particularly in Europe. Those European names such as Leonardo in Italy or BAE Systems in the UK or Rheinmetall in Germany and all this kind of just points to the the growing need and ongoing implementation of Europe's rearmament after the the kind of post-Cold War low in military spending on the continent.

Watch the full interview on the video.