In February, the US Department of Defence outlined plans to spend $716bn on national security in the 2019 fiscal year. It stated Trump’s budget establishes a foundation for rebuilding the US military into a more capable, lethal, and ready Joint Force.
Wright said the move is part of a rotation out of cyclicals into defensive stocks.
“The defence environment is improving quite a lot. The budget for the US this year is up 12% year-on-year. That’s a significant increase after what’s been seven years of decrease in the defence budget,” he said.
Ultra Electronics, Meggitt and Chemring Group now represent 5.5% of the Special Situations fund and its sister investment trust, Special Values. They are the biggest area Wright has added to in the year-to-date.
In contrast, he has sold out of cyclical names such as Man Group and Burford on the back of strong performance, as well as Nex Group, albeit before the £3.9bn bid by Chicago exchange group CME.
The investment trust has returned investors 50.7% over three years, compared to 28.2% in the sector, while the Oeic has returned 34.5% compared to 22.8% in the sector, according to FE data.
America First
The Department of Defence budget aims to “defend the homeland, remain the preeminent military power in the world, ensure the balances of power remain in our favor, and advance an international order that is most conducive to our security and prosperity”.
Defence Secretary General Jim Mattis has ordered bureaucracy is reduced in the department to direct resources towards increasing the lethality and capacity of the military.
As part of the $686bn of the budget allocated to the Department of Defence under the national security budget, major war fighting investments include 77 F-35 Joint Strike Fighters ($10.7bn), 15 KC-46 Tanker Replacements ($3bn), two Virginia Class Submarines ($7.4bn), three DDG-51 Arleigh Burke Destroyers ($6bn).
The budget also highlighted the importance of missile defence programmes due to North Korean ballistic missile threats.
A further $13.7bn was dedicated to science and technology to further innovation in areas such as hypersonics technology, cyber space, space, directed energy, electronic warfare, unmanned systems and artificial intelligence.
Trump this week said the US was looking to establish a sixth branch of the military based in space.
