Jane Edmondson, the Head of Thematic Strategy at VettaFi, joined Steve Darling from Proactive to iscussed the NATO defence ETF and its relevance for investors. Key factors contributing to its appeal include global instability, underinvestment in defence, particularly in Europe, and NATO's target of 2% GDP spending on defence, which may increase to 3%. The modernisation of defence technologies, such as drones and cyber defence, also plays a significant role. In 2023, global defence spending reached a record $2.4 trillion, marking the highest increase since 2009.
Most of the spending growth is in Europe, driven by the Russia-Ukraine conflict and the entry of Finland and Sweden into NATO. European Union countries spent €270 billion on defence in 2023, and this figure is expected to rise. A new defence industrial strategy encourages joint investments and procurement among EU nations. Recent collaborations include France and Germany's joint tank project and a drone defence initiative by six NATO countries. Additionally, there's a surge in defence-related IPOs in Europe, indicating growing interest in the sector. ESG investors are reconsidering defence investments, with many European pension plans reevaluating their positions. VettaFi's index screens for companies compliant with UN and OECD guidelines and focuses on NATO-aligned companies, offering an ESG-friendly approach to defence investing.
