By Iain Withers and Naomi Rovnick
LONDON (Reuters) -Britain’s biggest asset manager Legal & General will buy more defence stocks and supports the prospective launch of EU-wide defence bonds, its chief investment officer said on Thursday, as geopolitical tensions drive cash into the sector.
The defence sector has come into sharper focus as Europe steps up efforts to re-arm, also under pressure from U.S. President Donald Trump.
Asset managers across Europe are reconsidering their approach to investing in defence, Reuters reported, encouraged by clients and some politicians to increase their backing.
“With the public mood shifting so dramatically, you would expect that the earnings growth of these sectors will go up and probably go up quite significantly,” said CIO Sonja Laud, adding that the 1.1 trillion pound ($1.4 trillion) manager would “absolutely” increase exposure.
“We will go along with a more positive stance (to defence), it’s inevitable if you consider the geopolitical situation,” Laud told Reuters, adding that the sector’s appeal had risen considerably.
L&G is also in favour of an idea under discussion among European Union governments to issue common defence bonds to help fund military procurement, she added.
“We believe a common defence policy and approach would be absolutely the right strategic direction of travel. Looking at various financing mechanisms that would support that unity in the approach, I think actually would be welcomed,” she said.
L&G will retain its existing ban on investing in the most controversial weapons such as cluster munitions and biochemical weapons but otherwise raise its defence sector exposure, Laud said.
“We believe defence companies can be very much aligned to sustainable investing criteria,” she added.
Some fund managers have told Reuters that defence has no place in sustainable funds, and that there are plenty of assets sitting elsewhere that can be invested in the sector.
European asset managers hold 1.1% of their equity portfolios in the aerospace and defence sector, a situation that Laud predicted would change.
“The geopolitical environment has led to a different perception of security to start with. And of course that drives investor behaviours.”
($1 = 0.7724 pounds)
(Reporting by Iain Withers and Naomi RovnickEditing by Tommy Reggiori Wilkes, Kirsten Donovan)
