Cost of defence assets of European funds doubles due to war in Ukraine

The cost of defence assets of European investment funds, which invest into the stocks of defence companies, has more than doubled following Russia’s invasion of Ukraine.

Source: Financial Times

Details: About a third of funds in Europe and the UK, which focus on ecological, social and governance issues (ESG) now have €7.7 billion invested into this sector, compared with €3.2 billion in the first quarter of 2022, according to the analysis conducted by Morningstar Direct for the Financial Times.

Even though the increase in value can be partially explained by the rise of the prices of defence companies’ stocks after the full-scale Russian invasion of Ukraine, many investors also support the European governments’ point of view, according to which the support for armament manufacturers, which was often boycotted earlier and became the subject of student’s protests, now also has positive social connotations, not just risks.

The analysis by Morningstar Direct also shows that the quantity of European ESG-funds, which hold over 5% of shares in airspace and defence companies, has tripled, increasing from 22 to 66 over the last two years.

The value of assets in the airspace and defence sectors in funds is still small relative to their overall assets, accounting for less than 1% of the €1.5 trillion held.

However, this sector has gone from a "relatively uninteresting sector in a lot of investors’ minds" to one that many now "feel they need to be invested in, otherwise they may get left behind".

The MSCI Europe index for airspace and defence sectors has risen by 1.8 times since the beginning of 2022 as shares of leading contractors have increased sharply.

In the broader investments market the assets of the defence-themed funds, including mutual funds and exchange traded funds, more than tripled from US$5.8 billion in January 2022 to US$17.6 billion in July 2024, according to data from LSEG Lipper.

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