Opportunities in aerospace and defence – The Australian Financial Review

Australia has bought six long-range Northrop Grumman Triton drones to survey the South China Sea.

by Stirling Larkin

When Australian ultra high net worth investors return home after sunning in Europe during our winter months and ask for thoughts  on gold bullion, they are not really asking about just bullion.

What they have heard abroad and  want to hear an Australian answer to is the question: “Is now time to take risk off the table?”.

This also holds true for questions about the global military and defence complex, which is as inextricably linked to risks for global markets as they are to geopolitics and national security.

While the news out of Canberra last week that Australia had purchased six long-range Northrop Grumman [NOC:NYSE] MQ-4C Triton drones to survey the South China Sea made headlines, a much more significant armaments escalation across Asia and the Pacific in 2018 has made those with an eye on aerospace, defence and cyber armaments some of the better financial returns.

The relatively conservative, unleveraged and moderate iShares US Aerospace & Defense ETF is an investment markets example of a defence complex investment tilted towards growth in all senses of the word.

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The ETF’s price and funds under management have quadrupled in less than a decade, it’s provided US 401k pensioners exposure to the US military complex with a “S&P 500 vs beta” score of 0.88 (meaning that the ETF provides outperformance while not tracking too far from the S&P 500’s core performance) and allowed individual day traders a  way to express a sectorial view via a regulated exchange and respected ETF product provider (Blackrock).

Wider escalation

But this trend and escalation is not only being seen in Trump’s America; Japan, Taiwan, Vietnam, the Philippines and, of course, China have seen a level of rearmament escalation

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