Etf boom in the defence sector, but watch out for the timing

The world has once again become a powder keg, and since 2022, with the Russian invasion of Ukraine, conflicts involving Western nations directly or indirectly have increased.

On the stock market, the shares of defence companies, from aircraft manufacturers to cybersecurity technology companies, jumped significantly.

Over the past five years, the Msci global aerospace and defence stock index has gained 195% (so it has almost tripled), compared to 83% for the Msci of all stocks; over the past year the comparison is +38% versus +12% and since January +12% versus +1.1 per cent. The detachment means that investors are enticed to invest in them, also considering that the topic of defence has become a priority on the agendas of governments around the world. The earnings of the companies involved, therefore, enjoy a favourable outlook.

Since 2023, 19 new ETFs have been available to Italian savers. Etf's are Exchange traded funds (Exchange traded funds), which can be bought and sold with ease; they allow one to invest - in this case - on the performance of the defence sector or a subset of stocks, with the benefit of diversification even with a minimal investment. The products that have come onto the market are divided between those exposed to global giants, which benefit from high military budgets, to those focused on European companies, driven by the increase in NATO agreed expenditure, to those that invest in electronic warfare companies (drones, cybersecurity, artificial intelligence) or even those that intercept gepolitical trends such as military reinforcement in the Indo-Pacific area. Etf's, then, have lower costs than traditional funds managed by professionals who choose stocks and copy, instead, the stock composition of an index.

"Over the last three years,' comments Lorenzo Demaria, Country manager Italia at justETF, 'we have witnessed a structural change in the way the market views the defence sector. It is no longer a simple rally linked to the geopolitical tensions of the moment, but the emergence of a true defence super-cycle, underpinned by long-term public investment and a profound technological transformation. Whereas in the past a conflict led to short-lived speculative flare-ups, today we are facing a ten-year structural transformation'.