Defense contractors such as Lockheed Martin (LMT) and RTX Corporation (RTX), among many more, are at the epicenter of a massive replenishment cycle ushered in by the war in Iran lasting far longer than anticipated. U.S. rearmament is a valid reason to consider aerospace and defense ETFs such as the Invesco Aerospace & Defense ETF (PPA ).
But there are other potential catalysts to consider, and that’s a good thing. For example, news broke Tuesday that Russia is preparing to boost military expenditures by 27%. That makes sense because the war in Ukraine has lasted longer than U.S. involvement in World War II.
“Russia is preparing to pour more money into its war on Ukraine, boosting planned military spending next year by more than a quarter as the costs of the intensifying conflict mount and both sides strike deeper into each other’s territory,” reported Bloomberg.
It’s Pertinent to Defense ETF PPA
The specter of Russia elevating military expenditures won’t go unnoticed across Europe. Many nations there are already boosting defense spending due to the war in Ukraine. That’s relevant for investors considering PPA. That’s because many U.S. defense contractors also count European governments among their clients. Not surprisingly, drones — an emerging theme in which some PPA member firms are involved — are prominent in Europe’s defense spending equation.
“European Union member states approved five projects for joint defense-industrial investment in priority areas including drones and counter-drone systems as well as air and missile defense, part of efforts to encourage more cooperation on defense spending and avoid overlap in the 27-nation bloc,” according to Defense News.
The trend of surging defense outside of the U.S., China, and Russia isn’t confined to Europe. Major Asian economies such as Japan, South Korea, and Taiwan, are getting in on the act, too.
This Is ‘Not Noise’
That could bode well for PPA investors. But they should monitor the ability of large-scale defense contractors to improve their technological offerings. And they should do this while capitalizing on smaller, tech-driven deals.
“Capital is spreading itself across more, smaller bets on technology rather than concentrating in a handful of large platform deals. That is not noise. It is capital reorganizing itself around a different theory of how wars get won and, more to the point, how defense budgets get spent,” noted Carlyle.
For more news, information, and analysis, visit the Investing in Defense Content Hub.
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VettaFi LLC (“VettaFi”) is the index provider for PPA, for which it receives an index licensing fee. However, PPA is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of PPA.
