ETF white labelling firm HANetf has launched the Future of Defence UCITS ETF (NATO) on London Stock Exchange and Deustche Börse XETRA which tracks the EQM Future of Defence Index.
NATO seeks to provide exposure to the global companies generating revenues from NATO and non-NATO (NATO+) ally defence and cyber defence spending.
The firm writes that we are currently in the midst of the biggest land war in Europe since 1945, as illustrated by Lindsay Lloyd in an essay for the George W. Bush Institute, “While the immediate threat of military conflict between Russia and the United States is low, Russia and other states pose a serious and changing threat to America and its allies. NATO is an essential first line of defence.”
Meanwhile, HANetf writes that tensions in Asia-Pacific, not least over China, Taiwan, and the South China Sea, continue to increase. Elsewhere, the Middle East and the Sahel region of Africa remain highly unstable.
As a result, the firm notes, global military spending is on the rise. In 2022, a record USD2.2 trillion was spent—the highest level ever recorded. One area of growth is among European NATO members. These countries have been shaken out of their post-Cold War spending slump following the Russian invasion of Ukraine, with renewed efforts to reach the NATO 2 per cent of GDP military spending target.
In HANetf’s recent survey of wealth managers, 78 per cent reported that geopolitics had become more important when engaging in fund selection over the past year.
But in the 21st century, national security is not just about physical borders and military strength, the firm says, noting that governments now must consider safeguarding cyberspace, which has become a new battleground. Cybersecurity attacks increase consistently with growing geopolitical tensions, according to the EU’s agency for cybersecurity noted in its latest Threat Landscape report.
The Future of Defence UCITS ETF (NATO) brings these two components of modern defence together, capturing both growing conventional military budgets and the rising need for robust cybersecurity defence.
Using a passive, rules-based approach, companies must derive more than 50 per cent of their revenues from the manufacture and development of military aircraft and/or defence equipment or have business operations in cyber security contracted with a NATO+ member country.
The maximum exposure by country is 50 per cent, enabling non-US, NATO+ headquartered companies to achieve meaningful weight in the portfolio and providing more diversified global exposure.
Hector McNeil, Founder and co-CEO of HANetf, comments: “Whether it’s the ongoing war in Ukraine or the growing risk of conflict over Taiwan or the South China Sea, it is clear the world is becoming a riskier place. The post-Cold War world is over – and governments around the world are recognising this.
“After years of underspending, NATO members in Europe are finally taking their share of defence spending seriously. Poland, for example, is now aiming to spend 4 per cent of its GDP on defence and potentially build the largest land army in Europe.
“But it is not just spending on tanks and missiles. Cyberspace is now a new domain of warfare, which it has clearly been since both the 2014 and 2022 Russian invasions of Ukraine, which saw the latter relentlessly targeted by state-sponsored cyber-attacks.
“That is why we are launching the Future of Defence UCITS ETF (NATO), which will provide investors with a means of accessing the companies that will be poised to benefit from increased spending by NATO and NATO+ allies on both military hardware and cyber defence. Defence related funds exist but they tend to be industrials heavy and not focused on NATO and its allies which, by definition, is a defensive alliance and not an aggressor. NATO is a unique ETF on this basis.”
