2015 Defense Stocks Interview with Scott Sacknoff, President, SPADE Defense Index (NYSE: ^DXS)
Point Roberts, WA - NEW YORK, NY - January 22, 2015 (www.investorideas.com and Homelanddefensestocks.com) - Investorideas.com, a global news source covering leading sectors including defense and security, issues a 2015 interview with Scott Sacknoff, President of Spade Defense Index (NYSE: ^DXS).
Scott Sacknoff manages the SPADE Defense Index (NYSE: ^DXS) which serves as the underlying index for PowerShares Aerospace & Defense ETF (NYSE: PPA). http://www.spadeindex.com/
HDS: Hi, this is Dawn Van Zant with HomelandDefenseStocks.com. We are once again joined by Scott Sacknoff, President of the SPADE Defense Index, a benchmark for investors interested in defense and homeland security. He will look back with us on how investors performed in 2014, as well as give us a look ahead to what we can expect in 2015. Mr. Sacknoff, thank you for joining us.
SMS: My pleasure Dawn.
HDS: Let's start with 2014. How did the sector perform?
SMS: Well instead of an eagle, perhaps the symbol for aerospace and defense stocks should be the Energizer Bunny…as it keeps going and going. Even the most optimistic of analysts didn't foresee defense stocks gaining more than 48% in 2013, and after a 4 th quarter surge in 2014, the sector's benchmark ended 2014 with new historic highs, gaining 11.8% for the year, roughly 40 basis points ahead of the S&P500.
HDS: Can you tell us what drove this performance?
SMS: There were obviously a number of global incidents around the world, most notably the conflict between Russia and the Ukraine and the rise of ISIS in the Middle East and the threat that they represent. One could easily look around the world - whether it was Boko Harem in Nigeria, civil wars in Syria and Libya, or potential threats in Iran, North Korea, the Arctic, and the seas around China - and see conflict. Overall, large caps dominated again, a surprise after leading the sector for the past several years but mirroring a trend where the broader market sought safety in large cap companies. The returns from four of the five defense primes all significantly outperformed the market [General Dynamics +44%, Lockheed +30%, Northrop Grumman +29%, Raytheon +19%] with only Boeing being the laggard [It was down 5% after an 84% gain in 2013].
HDS: Were there any other noticeable trends?
SMS: The two big trends cited over the past several years continue, namely (1) gains in commercial aerospace, which is in the middle of a multi-year expansion, and (2) rising international defense sales that would offset cuts to the U.S. budget.
HDS: Skipping ahead to 2015, can you tell us which companies or activities might perform well?
SMS: Aerospace, defense, and security stocks should continue to be a stable place for investors as the sector tends to have a lower correlation with the economic, currency and political concerns economists expect in 2015. Companies involved with defense-related IT and homeland security activities such as cyber and big data should gain. And after several years of large caps dominating returns, the possibility that the cycle will shift to the small and mid-caps, as it did in the early 2000s, is gaining traction.
HDS: Lastly, in 2015, what are some key events that investors should pay attention to?
SMS: The Paris Air Show in June should present a number of interesting opportunities. The show is generally a showcase of international deals related to military and commercial aircraft, rotorcraft, UAVs and space systems, and announcements totaling $50-$100+ billion is typical. This will likely generate some headlines for several weeks in June. Additionally, there are some in the new Republican controlled Congress that are seeking to end sequestration and stabilize the defense budget through the end of the decade. The possibility is obviously a positive. Lastly, general economic conditions need to be monitored. Although the sector is less correlated with the global economy than other sectors, risk remains and short-term moves are not unexpected. Long-term, the sector has proven to offer investors with returns that exceed the S&P500.
HDS: With a long track record of results, are investors returning to the sector?
SMS: Many defense stocks are at or near historic highs. The Powershares Aerospace & Defense ETF (NYSE: PPA) hit its historic high on 26 December 2014. And over the past 18-24 months, the assets managed by ETFs have tripled from its lows when some thought major defense cuts were inevitable. Still in terms of shares outstanding, the funds are well below their peak, implying investors have returned but there is still significant room for growth. As it becomes more difficult for investors to pick and choose the winners in the sector and rotate among them, the ETFs tend to become more attractive and in turn attract more investors.
HDS: Scott, thank you for taking some time with us today.
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