Investor Ideas Talks to Scott Sacknoff, manager of the SPADE Defense Index About Current Global #MilitaryConflicts
November 13, 2023- (Investorideas.com Newswire)
Investorideas.com, a global investor news source covering defense stocks
releases an exclusive Q&A interview looking at the current military landscape
as global wars threaten the security of everyone.
Investor Ideas talks to Scott Sacknoff, Manager of
the SPADE Defense Index, an investment benchmark for companies involved with
the defense, homeland security, aerospace and government space markets.
Read
this news, featuring Spade Index in full at https://www.investorideas.com/news/2023/defense/11132SPADE-Defense-Index.asp
Interview
It’s been an eventful few months, if not the past
two years. With us today is Scott Sacknoff, manager of the SPADE Defense Index,
an investment benchmark for companies involved with defense and national
security.
In this interview, we are going to discuss the year
from an investor’s perspective and the ongoing actions impacting the defense
sector-Russia’s invasion of Ukraine, the Hamas attack on Israel and their
response, a Cold War-type rivalry forming with China, and the role of the US
Congress.
Investor
Ideas: Let’s tackle
each of these. Considering the above military conflicts, one would think
investors in defense stocks have been rewarded.
Scott Sacknoff: As we’ve long stated, the defense sector is a type
of insurance against global turmoil. The more worried people are, in general,
the greater the support for investing in defense companies and funds.
Following the Russian invasion of Ukraine, defense
stocks surged both in terms of price and new investment capital flowing into
the sector. People had become complacent in terms of world events and this was
a shock. European and NATO nations significantly increased spending on internal
security and nearly $100 billion in aid has been given to Ukraine to bolster
their response to the invasion. This led to the SPADE Defense Index
outperforming the S&P500 in 2022 by roughly 30%. In 2023, the Index has
gained an additional 8.5% not including dividends. This is typically a nice
annual gain although this year it is below the broader market which has been
fueled by a handful of technology stocks.
Limiting the defense sector’s return has been supply chain issues, that
have delayed the ability of the large prime contractors to deliver hardware and
weapons destined for Ukraine and replenish US stockpiles. But this is a
positive looking forward as today’s backlog will become tomorrow’s recorded
sales as deliveries are made. Additionally, it will also increase US military
capabilities and readiness as older, less modern weaponry delivered to Ukraine
is replaced by more modern weapons and systems.
Investor Ideas: How did the Hamas attack on Israel impact defense
stocks?
Scott Sacknoff: At that point in time, there was a general malaise
by investors when it came to the sector. As the war between Russia and Ukraine
dragged into a kind of stalemate, political opposition in the US (and the
European Union) to continue to fund Ukraine’s defense operations began to rise.
This is flawed thinking by Congress as the cost to enable Ukraine to hopefully halt
Russian aggression there is much less
than what would have to be spent to counter any future action taken by Russia
against a NATO nation or expansion into Europe.
The Hamas terrorist attack
on a music festival, and farming villages, taking several hundred hostages, and
of course, the subsequent Israeli response re-engaged attention on the defense
sector.
In the two months since this
became the lead news items, the SPADE Defense Index has gained more than 7% and
investors have increased their holdings in funds, like the Invesco Defense ETF
by 14%.
Investor Ideas: Considering the above, what do you expect in the
coming months?
Scott Sacknoff: Defense firms are well-positioned to grow through
the end of the year and throughout 2024. Since Russia’s invasion of Ukraine in
February 2022, defense spending in the United States has risen to a record high
and many European nations have significantly increased their military budgets
to combat the threat of a more aggressive Russia. The result has been many firms
with defense lines of business reporting historic levels of backlog orders. In
October, Raytheon reported a new record of $190 billion with $75 billion coming
from its defense business; Lockheed Martin reported $156 billion. Meanwhile
Boeing’s order backlog stands at $469 billion for more than 5,100 commercial
aircraft and $58 billion in defense. As supply chain issues resolve, companies
should see their backlog convert into reported income. With the conflict in the
Middle East potentially escalating, global orders for defense hardware should
remain strong.
Investor Ideas: What can
derail or upgrade your forecast?
Scott
Sacknoff: Derail…the key is Congress. Public opinion remains
at greater than 60% to continue to support Ukraine and supply weapons to them,
yet an increasing number of politicians on Capitol Hill—from both parties—are
calling for a reduction or elimination of that support. And for the moment,
Congress appears to have, for the most part, taken a stand in support of Israel
to root out the terrorist elements in the region. Yet how long that support
lasts is unknown. Likewise, we don’t know whether support for Israel will be
taken out of that provided funds earmarked for Ukraine, creating a net gain of
zero.
As far as upgrade, the two
conflicts mentioned could very easily escalate into a global situation. North
Korea is supplying weapons to Russia; relations between China and Russia appear
to be warming; and Iran is supplying drones and missiles to Russia, Hamas,
Hezbollah, and others. An escalation in
one or both regions could increase people’s wall of worry and defense stocks
have long proven to be a place investors tend to favor when they fear global
unrest.
Investor Ideas: Thank you for taking the time to chat
with us. For more information on the SPADE Defense Index, please visit spadeindex.com/defense. To learn more
about the Invesco Aerospace and Defense ETF that tracks this benchmark, please
visit Invesco's website, the
ticker on the NYSE Arca is "PPA".
Investor
ideas Defense stocks directory
https://www.investorideas.com/Companies/HomelandDefense/Stock_List.asp
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