Defence funds see sharp inflows as Israel-Hamas conflict threatens Middle East
INVESTORS last week flocked to exchange-traded funds tracking defence companies in the United States and Europe on expectations that the Israel-Hamas conflict could spill across borders.
The US$5 billion iShares US Aerospace & Defense ETF saw net inflows of US$7.2 million for the week ended Oct 11, after seven straight weeks of outflows, according to Lipper data.
The US$2 billion Invesco Aerospace & Defense ETF attracted US$48 million in net weekly inflows, its best showing since July 2022.
Both the funds jumped more than 4 per cent last week as their top holdings Lockheed Martin and Northrop Grumman rallied 10 per cent and 16 per cent, respectively.
In Europe, the recently launched Future of Defense ETF saw weekly inflows of US$1.1 million.
“Defence stocks rose on the back of the shock of last weekend’s events ... for many investors it makes sense to have defence exposure as a hedge against geopolitical shocks,” said Hector McNeil, co-CEO and founder of HANetf.
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The bombardment of Gaza continued overnight, with residents saying it was the heaviest pounding yet in nine days of conflict.
Authorities in Gaza said at least 2,750 people had been killed in Israeli strikes that followed an attack by Hamas militants on the country on Oct 7 that killed 1,300 people.
The US Secretary of State Antony Blinken was in the Middle East, with Iran warning of a regional escalation if attacks on Palestinians continue.
“If the fighting unfortunately endures longer, investors will further turn to weapons and defence suppliers,” said Todd Rosenbluth, head of research at VettaFi.
The iShares and Invesco ETF have gained 5.7 per cent and 14.2 per cent, respectively, in the last two years on expectations of increased defence budgets, following the Russia-Ukraine conflict.
US defence spending could grow at 4 per cent above inflation in the medium-near term, compared with the historical 2 per cent, analysts at BofA Research said in a recent note. REUTERS
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