Industry Trends & Analysis

 

About the Market

The Defense and Homeland Security market represents nearly 5% of U.S. GDP and is comprised of a diversified mix of companies whose activities range from the manufacture of complex systems and subsystems, to supporting vital government operations and services, to developing next generation, cutting-edge technologies. It is an industry that is constantly changing to take advantage of new technologies and to meet ongoing and emerging threats.

To effectively benchmark and represent the industry, the SPADE Defense Index was developed to adapt to changes in the Department of Defense and military community. It represents the manufacturers of naval vessels, military aircraft, armored vehicles, missiles and munitions and their associated electronics and systems, as well as firms involved with battlespace awareness, C4ISR, network centric warfare, homeland security including border security and biometric screening systems, space systems, and military cybersecurity efforts.

Continuing global instability around the world ensures that the sector will likely remain a focus for the foreseeable future. Currently around the world, there are military and security situations involving several dozen countries including those in Syria, Russia, North Korea, China, Africa, Iran, and Afghanistan. The statistics on the number of terror incidents that claim more than a 50 lives at a time are shocking.

While from an investment perspective, the sector can be seen as a type of insurance on global instability, the sector’s performance over the past two decades has produced results significantly above the broader market. Over the past 15 years, the SPADE Defense Index has outperformed the S&P500 by nearly 350%.

The top and bottom lines of companies are being driven by:

  • Spending by governments for defense and security–now total nearly $1.7 Trillion in 2016 (SIPRI),
  • A major upcycle in the procurement of commercial aircraft designed to fly with increased fuel efficiencies,
  • The emergence of spending on cybersecurity and other advanced technologies,
  • A rise in international defense sales, and
  • New commercial sector opportunities.

Additionally, over the past 40 years, as the sector has showed steady gains, it has also shown the ability to recoup from declines when factoring in reinvested dividends–even during periods of budget tightening. Even after this extended move higher, many analysts continue to believe that the sector continues to present opportunities.

 

 

 

U.S. Defense Budget Since 9/11