Defence stocks have risen to become one of the best-performing and defining investments in recent years, firmly outpacing the wider UK and US markets, according to recent research by trading platform IG.
The platform grouped the largest European and US-listed defence companies into two equal-weight baskets – with names such as Rheinmetall and Rolls-Royce in the European basket and General Electric in the US.
The European Defence basket has surged nearly 813% in the past half a decade, a supranormal return versus the FTSE 100, which was up just 80% by comparison.
This was driven primarily by Rolls-Royce and Rheinmetall, which had surged 1395% and 1396% respectively over the past five years. Airbus and Safran, meanwhile, were up 110% and 220% respectively, still outpacing the FTSE 100.
Meanwhile, the US defence basket had risen 306.9%, an almost three-fold outperformance compared to the S&P 500 (up 80%). The best performer in this basket was Howmet Aerospace, up 777.2% over the past five years.
Chris Beauchamp, chief market analyst at IG, said: “Geopolitical tensions, the war in Ukraine and a fundamental shift in government spending priorities have driven a remarkable re-rating across the sector, with investors increasingly pricing in stronger earnings and long-term order books.
This analysis comes as NATO leaders meet this week, under increasing pressure to accelerate defence spending to 5% of GDP by 2035.
“What’s particularly interesting about this year’s NATO summit is that the discussion has shifted from whether countries should increase defence spending to how quickly they can do it, and where that money will be invested
“Markets have already priced in a significant amount of optimism, but if governments follow through on these pledges, defence could remain one of the market’s most important long-term structural growth stories,” Beauchamp concluded.
See also: WisdomTree bolsters defence ETF range with two new funds
