WASHINGTON: Investors piled into exchange-traded funds tracking defence companies since October in anticipation of increased military budgets in the US and Europe due to rising incidents of geopolitical conflicts.
The Invesco Aerospace & Defence ETF has seen net inflows of more than $100 million so far this month, according to Lipper data, adding to the nearly $180 million it raked in October.
Peers like the $5.5 billion iShares US Aerospace & Defence ETF and $1.78 billion SPDR S&P Aerospace & Defence ETF have posted net inflows of $178.4 million and $163.6 million, respectively, since October.
“National security threats are growing in magnitude and complexity, driving wider need for the latest defence technologies,” said Ashish Shah, global chief investment officer of public investing at Goldman Sachs Asset Management in a note.
“Companies positioned to benefit as the US and other NATO countries increase their spending on high-tech surveillance and deterrence should do well.”
Since February 2022, the Invesco fund’s total net assets have nearly quadrupled to $2.37 billion from $632 million as the war in Ukraine boosted military spending and aid.
Assets further climbed 19% since the October 7 attack on Israel by Hamas that killed 1200 people, followed by Israeli military strikes on Gaza that have killed more than 13,000 people.
US President Joe Biden has asked Congress to provide $106 billion in supplemental funding, with $61.4 billion for Ukraine and $14.3 billion for Israel.
Of this, $10.6 billion would go to Israeli air and missile defence support, while $30 billion will help supply Ukraine with weapons and replenish US stocks.
The US Congress has approved $113 billion for Ukraine in 21 months since the start of the war.
Defence ETFs have also benefited from an increased interest in tech stocks because so much of the defence industry will be influenced by advancements in AI, said Michael Ashley Schulman, chief investment officer at Running Point Capital.
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