War! What is it good for? Apparently shares in Rheinmetall.
Upon the launch of a European defence ETF by WisdomTree last week, we thought we’d take a quick look at whether the revival of arms as an investment theme could dislodge some of the old favourites like healthcare and technology.
The question is, will it last?
The folks at Arbuthnot Latham seem to think so.
“The defence theme is likely to be a thematic play rather than a ‘sugar rush,’” said Jason Da Silva, their head of investment strategy. “We have seen increased European defence spending accelerate very sharply over the past few weeks since the German elections and will last for 10 years.”
He did, however, point out the perils of thematic funds tending to arrive rather late to the outperformance party. Effectively, by the time asset managers have figured out which new theme to launch and by the time a fund house has launched a fund in response, it’s already too late.
It’s possible these companies have already collected all their annual gains in the first two months of the year, added Paul O’Neill, chief investment officer at Bentley Reid.
EQ’s sustainable portfolio manager Tertius Bonnin said there’s “clearly an element of opportunism” in launching a new ETF following a 30 per cent rally in these companies, but they tend to comprise normal parts of the wider regional indices anyway.
Whether it’s entirely ethical is another question best left for DFMs to ponder with their clients.
As it stands, there are no rules stopping ESG investors from using defence assets in portfolios, according to the FCA. It comes down to the sustainability policies of the individual house.
