Reuters: Defense Stocks and Funds

November 20, 2023

Increased military spend

Running Point and its chief investment officer, Michael Ashley Schulman, CFA were cited by Reuters — in an article by Bansari Mayur Kamdar, Investors pump over $600 mln into defense funds as geopolitical tensions rise — regarding investors recently buying exchange-traded funds (ETFs) tracking defense companies in anticipation of increased military spend in the U.S. and abroad.

Geopolitical tensions tend to benefit defense stocks

Investor interest and activity in defense ETFs and underlying stocks increased markedly with the start of Russia’s war in Ukraine and has continued to hold momentum as that war drags on with 200,000 dead and 300,000 wounded. It has depleted armaments in the U.S and Europe that need to be replenished and caused geopolitical tensions to increase versus Russia.

Defense stocks and ETFs, often contrary to other sectors, tend to do well when there is an increase in geopolitical tensions, government defense budgets, national security concerns, or regional wars and crises; and we’ve seen all of that in the past 20 months.

Over the past year-and-a-half, fears of a possible war over Taiwan’s independence have escalated as tensions between China and the U.S. have surged over trade, semiconductor technology, and Taiwanese self-rule. Moreover, U.S. President Joe Biden and Philippine President Ferdinand Marcos Jr. have strengthened their alliance, and the U.S. administration has reiterated close defense ties with South Korea, further fueling concerns. Additionally, Hamas’ recent war against Israel and U.S. defense against Syrian and Iraqi attacks have led to billions of dollars in fresh military spending. War in Sudan and ongoing wars in Ethiopia add to the imbalance and drive increased demand for weapons and defense systems.

Article excerpt is below:

Defense ETFs have also benefited from an increased interest in tech stocks because so much of the defense industry will be influenced by advancements in AI, said Michael Ashley Schulman, chief investment officer at Running Point Capital.

Defense ETFs
Defense Stocks — Photography and graphics and by; background paiting by Georgia O’Keeffe

I’ve been absolutely terrified every moment of my life and I’ve never let it keep me from a single thing that I wanted to do.

Georgia O’Keeffe, pathbreaking American modernist painter

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