Opportunities in Trump, Tariffs, and Turbulence

C. 1 month ago my view that defence investing was a no-brainer was only reinforced. In the wake of the fallout from that White House stand-off between Zelensky and JD Vance, the reality that Europe needed to re-arm and could not rely on the US to come to its defence spurred a reality check for politicians across the continent. The EU declared an €800 billion spending spree to defend against Russian aggression. BAE shot up over 15% on one morning, with Chemring approaching double digits. Airbus, with its Defence and Space division, while not leading the pack also shared in the news. The Themes Transatlantic Defence ETC (ticker: NATO), which I do not own, is up over 11% in the last month. Other European defence behemoths, like Rheinmetall, have also soared in recent weeks.

The UK government has made overtures implying an overhaul of rules to encourage pension funds to begin investing. MPs are in the House of Commons calling for defence to no longer be considered officially 'unethical'. Indeed, I for one think it is one's duty to support our defence companies - our government hasn't been, so it comes down to the market.

Immediately the UK's Daily Telegraph had articles hazarding against buying into the rush for defence stocks. There may be some validity to this; as with any sudden spike in value for an industry, once it hits the news, much of the value has been realised. That does not mean I will be selling, however. We have already seen some mild retreats in value, however, it is my view that the geopolitical instability in Europe is only just beginning. To counter the argument provided in the Telegraph, that it is not the case these defence companies suddenly became, say, 15% more valuable overnight: no, they did not, but that does not mean they were fairly valued up until that point.

The market is only just waking up to the importance defence and aerospace companies are going to play in the next decade. Reading history tells us that very unfortunately the Ukraine invasion entails far more than the market was giving it credit for in the last few years. The reality is now settling in, and defence stocks will continue to rise over the next decade, even if right now is not the most optimal entry point.

My overall gains were, unfortunately, short-lived and my defence stocks turned out to be defensive elements in my portfolio. Despite the surge in defence stocks, I have essentially stood still as the Trump tariff turbulence shook my tech stocks, other US-listed holdings, and ETFs. It has represented a good buying opportunity; now is a good time to begin advancing my S&P500 position, taking full advantage of dollar-cost-averaging.

As ever, we tread carefully. With news from the Federal Reserve today defying the chaos to hold interest rates, Wall Street surged. Nevertheless, as with 2022, American stock market volatility and declines will continue well into the summer with tech stocks bearing the brunt.

The good news, however, is that as a result of this chaos in the American market, despite individual defence stocks being quite expensive now, the NATO ETF mentioned above may be a sensible choice. This is because of how much of its dominant holdings include Palantir which, as everyone knows, has been getting utterly battered in recent weeks. With that, and other equities in that ETF unfairly pressured due to the short-run US crisis, if you want exposure to defence but need the buying point to be suppressed, those factors within the NATO ETF could make it a good candidate.

At the same time, EU and UK stocks now look even more attractive as investors seek alternative markets to shelter from the American storm. In the last few weeks, it has been delightful to see my US-losses balanced out not only by my defence holdings, but also some LSE holdings including classic blue chips, but also companies like Airtel Africa, SThree (starting to maybe recover), and GSK.