HomelandDefenseStocks.com Q&A
Interview with Scott Sacknoff, SPADE Defense Index ( $DXS)
Point
Roberts, WA and Delta, BC – April 23, 2021 (Investorideas.com Newswire)
Investorideas.com, a global news source and leading investor resource releases
an exclusive Q&A interview through its defense portal HomelandDefenseStocks.com.
Scott
Sacknoff, manager of the SPADE Defense Index (DXS), an investment benchmark for companies involved with the
defense, homeland security, aerospace, and government space markets,
discusses recent developments in the sector.
Read this in full at https://www.investorideas.com/news/2021/defense/04231Interview-Scott-Sacknoff-SPADE.asp
Q&A Interview: HomelandDefenseStocks.com
(HDS) Scott Sacknoff
The following is a transcript of an
interview that took place on 21 April 2021 between
InvestorIdeas.com and Scott Sacknoff
(manager of the SPADE Defense Index)
Re-distribution, excerpts, and citation
are permitted.
InvestorIdeas.com: The
White House has announced its topline budget for the Department of Defense for
fiscal year 2022. With us today to discuss the defense sector and topics of
interest to investors in the sector is Scott Sacknoff, manager of the SPADE
Defense Index—an investment benchmark for companies involved with the defense,
homeland security, aerospace, and government space markets. To begin with,
President Biden’s call for a national security budget of $753 billion. How does this compare with prior years?
Scott Sacknoff: Overall it is a 1.7 percent increase
over the FY21 enacted level. This includes the budget for the Pentagon as well
as Department of Energy nuclear programs and other defense related activities
outside of the DoD. Of this total, $715
billion is directed to the Pentagon, a 1.6 percent increase over the FY21
enacted level of $703.7 billion. The goal of the White House at this time appears
to be striking a balance between progressives on Capitol Hill calling for
reduced budgets and defense hawks seeking a 3-5% annual gain to cover
inflation. Overall, it is slightly more than the flat budget many
expected.
InvestorIdeas.com: Only a top line number was released. When
should we expect details?
Scott Sacknoff: When there is no change in an administration,
a full detailed budget request is typically released in February by the White
House. When an administration changes control, a delay is common. We anticipate seeing something in May or
early June. A new team can only change so much in a compressed timeline.
InvestorIdeas.com: The Pentagon, NASA, and other agencies
typically provide a five-year outlook on its spending as part of the budget
release. Will that be published as well?
Scott Sacknoff: It is doubtful that what is known as the
Future Years Defense Program (FYDP) projections will be completed in time. The
Biden Administration will likely want to put its own stamp on defense strategy
and will seek to shift the budgets accordingly. The impact of any changes won’t
really be felt until FY23.
InvestorIdeas.com: Are there any other factors influencing FY23
and beyond?
Scott Sacknoff: There will undoubtably be debates regarding
the budget and the deficit, first with increasing the debt cap later this year
and then with the FY23 budget expected next February. For the past several years, Congress has been
operating under the Budget Control Act restrictions. With the expiration of the
BCA, Biden has stated that he wants to boost nondefense spending by 16% to
$769B, which they state is 3.3% of the US GDP, roughly equal to the 30-year
average. How this impacts defense spending at this time is not really known. A growing
economy over the next 12 months or a rise in global conflicts post-COVID could
dampen any impact.
InvestorIdeas.com:
Which
areas of defense will likely benefit?
Scott Sacknoff: General Mark Milley, the chairman of
the Joint Chiefs of Staff, has advocated for “heavy investment” in sea, air,
and space-centric platforms. The Administration stated it will prioritize
R&D spending to drive innovation and develop next-generation capabilities. Based
on comments, shipbuilding including next-generation attack submarines, remotely
piloted vehicles and drones, the B-21 bomber, and space systems are likely to
benefit. New investments, such as DARPA’s LongShot program or a recent hint to
a next-generation fighter aircraft platform, are likely to emerge.
InvestorIdeas.com:
Which
areas will be negatively impacted?
Scott Sacknoff: To pay for the above, the Pentagon
will likely redirect resources from legacy programs and reduce the current size
of the Army. Additionally, while spending on nuclear missile modernization
under the Ground Based Strategic Deterrent program (the replacement for our
ICBMs) will rise dramatically over the coming decade, a restructuring to free
up capital is likely to occur.
InvestorIdeas.com:
How
does the elimination of the Overseas Contingency Operations budget line-item
impact firms?
Scott Sacknoff:
It really doesn’t. The OCO was created to cover unforeseen costs in the
war on terror and to bypass the Budget Control Act spending limits, since war
spending wasn’t subject to the cap. OCO spending has declined significantly in
recent years and will be integrated into the base defense budget.
InvestorIdeas.com:
Any
other insights from the budget release?
Scott Sacknoff:
The document specifically states that the top challenge of the DoD is to
counter the threat from China and deter “destabilizing behavior by Russia.” Additionally, it mentioned that the Pentagon
will likely play an increased role in, “programs that support biological threat
reduction in cooperation with global partners, emerging infectious disease
surveillance, biosafety and biosecurity, and medical countermeasure research
and development.”
InvestorIdeas.com:
In
your most recent SPADE Investor newsletter,
which is available for free on your website, you mentioned that an important
growth area for defense firms has been international sales. And that it is
important to see what policy the White House takes in this area.
Scott Sacknoff: For a number of firms, sales to nations
outside the United States, its strategic partners and others, represents
significant revenues and is highly profitable. There was a question about how
this new Administration would handle these requests, which many times can
require DoD, Department of State, White House, and/or Congressional approval.
In late March, the administration approved a number of smaller deals to NATO,
Jordan, and Chile while restricting purchases of weapons by Saudi Arabia, due
to its involvement with the assassination of an American journalist and
publicized atrocities in its war with Yemen. So, it remained unclear what
direction the White House would go—activist or more free market. This appears
to have been clarified when, in mid-April, the White House gave its blessing to
a $23.3 billion arms sale to the UAE that many believed would be canceled or at
least significantly delayed.
InvestorIdeas.com:
Before
we conclude, how did the sector perform in the first quarter or 2021?
Scott Sacknoff:
The SPADE Defense Index gained 7.12%, outperforming the S&P500 which
gained 5.77%. And in early April, the
Index once again hit historic highs.
InvestorIdeas.com:
Thank
you for taking the time to update us on the sector. For more information about the
SPADE Defense Index, please visit spadeindex.com/defense.
To learn more about the Invesco Aerospace and Defense ETF (NYSE: PPA) that tracks this benchmark, please
visit the Invesco website.
* *
*
Disclosures
SPADE Indexes LLC is the owner of the trademarks, service marks,
and copyrights related to the SPADE Indexes.
This interview does not constitute an offer of an investment
product. SPADE Indexes makes no representation regarding the advisability of
investing in vehicles based on any of its indexes including the SPADE Defense
Index. All information is provided ‘as is’, for information purposes only, and
is not intended for trading purposes or advice. Neither SPADE Indexes nor any
related party is liable for any informational errors, incompleteness, or for
any actions taken based on the information contained herein. For additional
disclosures and disclaimers, please visit the SPADE Indexes website at: http://spadeindex.com/about-spade-indxes/legal-and-disclaimers/
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