From a business perspective, 2020 will be remembered as an incredibly challenging and volatile year. But in mid-2021, as society began the process of normalizing (at least in the United States), defense investment returns were back to historic highs. This remarkable indicator shows how strong the sector has been.
But longtime investors wouldn’t be surprised by this recent rebound. In each of the previous two decades, 2000-2009 and 2010-2019, the SPADE Defense Index outperformed the S&P 500 by more than 120 percent.
Corporations around the world have been grappling with the effects of a pandemic that disrupted both global and local trade, and the defense sector was no different. Companies active in defense and related markets, such as aerospace, have been hit by a production shutdown of the Boeing 737 Max airliner, a collapse in global commercial air travel and transportation (up to 90 percent at times), and a political election Further challenged in the US This led to a change of control in the White House and the House of Representatives.
See the top 100 list for 2021 here!
As companies struggled to maintain a healthy workforce and keep operations running in a slowing economic environment, they also had to manage a global supplier base with similar problems. The US Department of Defense recognized that defense production capacity is critical to readiness and has taken several measures in support of the defense industrial base and should be commended for them.
Much of the sector has been classified as a critical workforce and many manufacturing sites have been declared critical infrastructures. This enabled the agency to raise more than $ 10 billion from Congress-provided COVID-19 economic support packages to help manufacturers in distress from the aerospace slowdown and contract payments to prime contractors which in turn accelerated payments to their subcontractors.
With the transition from 2020 to 2021, the outlook for defense companies improved. Global regulators cleared the return of the 737 Max, commercial aviation began an upward trend, and new commercial aircraft were ordered. Additionally, the White House’s 2022 budget proposal shows continued support for the Pentagon and a willingness to invest in new technology that will enable defense companies to be more competitive on a global scale.
The stability and support from the defense industry’s largest customer has encouraged the companies to maintain their growth strategy. The announcements of mergers and acquisitions that will affect the top 100 list continue. High profile deals for Cubic Corporation, FLIR Systems, Perspecta and DynCorp International have already been closed. A planned deal for Lockheed Martin to acquire Aerojet Rocketdyne is awaiting regulatory approval later this year.
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Taken together, these recent positive actions have been reflected in stock prices. In 2020, the SPADE Defense Index was flat year-on-year, while the individual stocks delivered returns for investors ranging from a gain of 146 percent (Maxar Technologies) to a loss of 55 percent (Viasat).
That year through June 15, 2021, the index gained 14 percent, outperforming the broader US market. Such a performance is not atypical: In the last 21 years, the sector performed in 17 of them several times in double digits. It’s one of the reasons funds like Invesco’s Aerospace & Defense ETF have invested a total of $ 5 billion in assets in the sector.
Listed defense companies make up more than 70 percent of Defense News’ latest Top 100 list, and 80 percent of those are based in the United States. This provides a wealth of data and a degree of transparency about a sector that has proven to be a solid investment in good times and bad.
Scott Sacknoff manages the SPADE Defense Index, a modified capitalization-weighted index composed of companies active in the defense, homeland security and government space sectors.
source https://thedailytradingnews.com/even-in-a-challenging-period-publicly-traded-defense-stocks-thrive/
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