2016 Defense Stocks Interview with Scott
Sacknoff, Manager, SPADE Defense Index (NYSE: ^DXS)
“I anticipate that aerospace, defense, and homeland security stocks
should continue to be a stable place for investors” - Scott Sacknoff
Point Roberts WA, NEW YORK, NY – January 13, 2016
– www.investorideas.com
newswire and Homelanddefensestocks.com (HDS) - Investorideas.com, a digital global
news source covering leading sectors including defense and security, releases
the following interview with Scott Sacknoff, President of Spade Defense Index (NYSE: ^DXS) .
Scott reflects on the performance of the sector for
2015 and looks ahead for 2016.
Scott Sacknoff
manages the SPADE Defense Index (NYSE: ^DXS) which
serves as the underlying index for PowerShares Aerospace & Defense ETF (NYSE: PPA). http://www.spadeindex.com/
Read the full interview at http://www.investorideas.com/news/2016/defense/01141.asp
Interview Q&A
Interview – January
2016
HDS: We are joined by Scott
Sacknoff, manager of the SPADE Defense Index, a benchmark for investors
interested in defense and homeland security, for his annual review of 2015 and
some perspective on what investors can expect in 2016. Mr. Sacknoff,
thank you for joining us.
SMS: My pleasure Dawn.
HDS: Looking back at 2015,
how did the sector perform?
SMS: I once made the
analogy that the symbol for the aerospace and defense sector shouldn’t be the
eagle, it should be the Energizer® bunny…it keeps going and going. 2015
was obviously a rough year for the broader markets with its first calendar year
decline since 2008. Comparatively the defense sector gained more than 3%
and the streak is now at five years in a row defense has beaten the market; 13
in the last 16. And the down years include two that produced gains of 10 and
20% gains, and a third that roughly equaled the market.
Top Five Performers in 2015
- Mercury Computer 40.00%
- Leidos
31.90%
- Northrop Grumman 28.10%
- OSI
Systems
25.28%
- Harris Corporation 21.00%
Large Defense Primes in 2015
- Northrop Grumman 28.10%
- Raytheon 15.12%
- Lockheed Martin 12.76%
- Boeing 11.24%
- General Dynamics -0.19%
HDS: Can you tell us what
drove this performance?
SMS: Key to the
performance was stability in Congress or at least a decline in the rhetoric
from those lawmakers wanting to cut defense spending. In fact the agency not
only got a budget but one at levels they were happy with. Part of this
was due to ongoing turmoil around the world and recognition that activities
related to defense and homeland security are important. I’ve always
maintained that the sector is a type of insurance and protecting its citizens
is a critical role of government. This is not only true of the United States
but of the world as a whole and there has been an increase in spending on
defense and security which has benefited U.S. suppliers. Lastly, as I’ve
mentioned for a number of years, commercial aerospace is in an expansion phase
and continues to build and deliver planes to meet the needs of world travel
growth and the transport of commerce.
HDS: Considering
the peak in the U.S. defense budget a few years back, international sales
seems to be playing an important part of the sector's stability. Can you
share with us some data on global defense spending?
SMS: Well, according to
SIPRI, an international organization who keeps track of military
expenditures, total defense spending in 2014, globally, was $1.78 trillion
and it was forecast to be essentially flat in 2015. But the total
amount isn't the only factor. There is a rotation factor. While the total
was flat, spending in Asia and the Oceania region was up roughly 5%
with China and Australia increasing their investments. From a U.S.
foreign military sales perspective, which has impact on the public companies
investors are looking at, in fiscal year 2015, DSCA, the government agency
responsible for approving such sales, approved $47.1 Billion, up from
$34Billion in FY2014. A quick look at the November/December timeframe
shows $80M for the Bell(Textron) 412EP helicopter for Argentina,
$1.2B from Japan for Northrop's Global Hawk UAVs, more than $1B for
various items for Taipei, and $180M from Australia for Boeing's CH-47F
aircraft. And it is expected to continue. In the first days of
January DCSA approved an $800M sale to Iraq for Hellfire missiles and
other equipment.
HDS: Were there any other
noticeable trends that will impact 2016 and beyond?
SMS: Perhaps because we
are becoming numb to it but it doesn’t seem like a week goes by without another
major terrorist incident happening. The 130 people who lost their lives in
Paris last November was just one of many events. In fact, I did some
research before this interview and even I was surprised to learn how many acts
of terrorism there were. In the second half of 2015 alone there were 241 acts
of terrorism recorded. Overall there were 12 terrorist acts where more
than 75 people lost their lives. I read in Foreign Policy magazine
that a recent University of Maryland study showed that strikes killing 100+
people averaged 4.2 per year from 1978 to 2013, it was 26 in 2014. What
this appears to mean is that large scale attacks could be the new norm.
Not a pleasant thought but one that is likely on the minds of policymakers
around the world.
|
January
|
Boko Haram
|
150-2000
|
Nigeria
|
|
February
|
Boko Haram
|
91+
|
Cameroon
|
|
March
|
ISIS
|
137
|
Yemen
|
|
April
|
Al-Shabab
|
147+
|
Kenya
|
|
June
|
ISIS
|
154
|
Syria
|
|
June
|
Boko Haram
|
145+
|
Nigeria
|
|
July
|
ISIS
|
130
|
Iraq
|
|
August
|
ISIS
|
76+
|
Iraq
|
|
September
|
Boko Haram
|
80+
|
Nigeria
|
|
October
|
ISIS
|
224
|
Egypt
|
|
October
|
ISIS
|
102
|
Turkey
|
|
November
|
ISIS
|
130
|
France
|
HDS: Looking at 2016, what
do you have your eyes on?
SMS: I anticipate that
aerospace, defense, and homeland security stocks should continue to be a stable
place for investors and the sector tends to have a lower correlation with the
economic and currency concerns we are facing. There will be plenty of
international attention on troubles around the world, whether it is ISIS, the
battle for Syria, tensions between Saudi Arabia and Iran, North Korea’s nuclear
ambitions, and that’s just a starting point. One wildcard is the impact
of low oil prices. Will budget issues and a decline in services lead to
increased regional turmoil in the oil producing nations? Could this boost
global spending on security and surveillance products?
2016 is also a U.S. presidential election year and
depending on who the final candidates are one can predict a high level of
rhetoric on the defense budget and whether or when the candidate is willing to
supply troops to a battlefield. The question is whether investor reaction will
be met with trades well in advance of any actual budget action, or whether
there will be a wait and see approach.
HDS: Turning toward investors,
how are they reacting to all this news?
SMS: I’ve noticed an
increase in stories from the financial media and portfolio managers calling
defense one of their top picks for 2016. There was a recent article in
Barrons and I caught a Jim Cramer segment the other day. This has been
backed up by a significant inflow of assets into defense stocks during December
and January with trading volume in the Powershares Aerospace & Defense ETF
(NYSE: PPA) doubling during the quarter and total assets up 25%.
HDS: Scott, thank you for taking
some time with us today.
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