HomelandDefenseStocks.com Q&A Interview with Scott Sacknoff, SPADE Defense Index ( $DXS) - Themes for Investors in 2021
Point Roberts, WA and Delta, BC - February 2, 2021 (Investorideas.com Newswire)Investorideas.com, a global news source and leading investor resource releases an exclusive Q&A interview through its defense portal HomelandDefenseStocks.com.
Sacknoff, manager of the SPADE Defense Index (DXS), an investment benchmark for companies involved with the defense, homeland security, aerospace, and government space markets, discusses his forecast for 2021 and themes investors should watch for.
Q&A Interview: HomelandDefenseStocks.com (HDS) Scott Sacknoff
Q: InvestorIdeas.com: After more than twenty years of your index outperforming the US stock market, by more than 120% in each of the past two decades, aerospace and defense stocks significantly underperformed the market in 2020. Talk to us about that and what you see for 2021?
A: Scott Sacknoff: There is no denying that the sector was hit hard last year, although it must be pointed out that despite the major challenges for the sector in 2020, after dividends, the index still finished the year in positive territory.
To remind people of the challenges impacting the sector, the year began with the Boeing 737 Max being shut down by regulators as it underwent a global design review. Commercial aerospace firms were then quickly impacted by the COVID-19 pandemic, which reduced commercial air travel by up to 90% at times. Roughly a quarter of revenues by the defense firms in our index typically come from commercial sales. So, while defense contracts remained stable and the Pentagon was able to allocate pandemic relief via new contracts to systematically important firms, navigating in a pandemic environment was still a challenge for most firms.
Faced with this commercial market uncertainty and combined with presidential and congressional elections in the latter part of the year, many investors in the sector moved to the sidelines; especially after a 20-year period of outsized gains. That said, we ended the year with a number of positives and investors should see these play out in 2021.
Q: InvestorIdeas.com: Tell us about those and your forecast for 2021?
A: Scott Sacknoff: I believe that the case for defense stocks remains strong. There is no demand shortage for the products these companies sell and many of the technologies they are involved in will remain key areas of investment for years to come. Whether it's autonomous control of vehicles and drones, cybersecurity, space technology, or lightweight batteries and power supplies. Although changes in the political leadership at the White House and in Congress can lead to a shift in priorities; what drives defense stocks ultimately is how safe we feel. The world does not appear to be getting any safer and our level of comfort hasn't risen since the "peace dividend" after the fall of the Soviet Union in the late 1980s/1990s. And despite defense spending being flat in the United States, international sales have grown significantly over the past decade. Overall, global defense spending continues to rise with a total worldwide market greater than $2 trillion--China's defense budget rose 6.6% in 2020, France's grew 4.5% in 2021, and Japan has seen 9 consecutive years of growth.
With respect to commercial aerospace, the major headwinds from 2020 are moving toward resolution. Regulatory agencies around the world have approved the Boeing 737 Max to return to flight and a number of airlines have already started flying the planes without incident. More importantly several vaccines have been approved and we believe that significant progress to controlling the pandemic should lead to a 3Q21 and 4Q21 rebound in commercial air traffic, though obviously not to pre-pandemic levels immediately.
Finally, we anticipate that the significant investments into military, civil, and commercial space-related ventures will continue. Private investors put more than $12 billion into these activities during the 1H20, numbers that are large enough to have a meaningful impact.
It is our belief that a return to normal will boost the sector and provide investors interested in the aerospace and defense with a number of opportunities.
Q: InvestorIdeas.com: In your most recent SPADE Investor newsletter you refer to several themes for 2021. Please tell us about those.
A: Scott Sacknoff: Well, we've already addressed some, but any investor interested in the sector should recognize the following: First, the pandemic. How do we overcome it and will any new variants impact how fast we get back to normal? Second, the need for security transcends elections and partisan politics. Third, the world is still a dangerous place. We may have forgotten because the news cycle in the US has focused on the pandemic and the election but there are a lot of problems around the world including, as the events on Capitol Hill in January showed, internal and external threats to homeland security. People generally feel unsafe. Fourth, what is the focus of the new administration? Will they continue the shift to allocate resources toward big power enemies such as China and Russia and away from those posed by terrorist non-nation state threats? Will they continue to approve international arms sales or add restrictions? And finally, we see defense sector mergers and acquisitions to continue, presenting a number of opportunities for investors.
Q: InvestorIdeas.com: Lastly, as a defense analyst, what worries you the most?
A: Scott Sacknoff: I think so much attention by the media has focused on the pandemic and politics in recent years that we've lost sight of the all the problems the world is facing. The US has a diverse list of adversaries including China, Russia, Iran, and North Korea, and there are a number of hot spots around the globe that most people don't know about. There is a new nuclear arms race resurfacing and increasing competition in the domains of cyber and space. Terrorism has been quiet, but we know things happen when we least expect them. And of course, I obviously worry about the rise of COVID-19 emergent strains that are vaccine resistant.
InvestorIdeas.com: Thank you for taking the time to chat with us. For more information on the SPADE Defense Index, please visit spadeindex.com/defense. To learn more about the Invesco Aerospace and Defense ETF that tracks this benchmark, please visit Invesco's website, the ticker on the NYSE Arca is "PPA".
SPADE Indexes LLC is the owner of the trademarks, service marks, and copyrights related to the SPADE Indexes.
This interview does not constitute an offer of an investment product. SPADE Indexes makes no representation regarding the advisability of investing in vehicles based on any of its indexes including the SPADE Defense Index. All information is provided 'as is', for information purposes only, and is not intended for trading purposes or advice. Neither SPADE Indexes nor any related party is liable for any informational errors, incompleteness, or for any actions taken based on the information contained herein. For additional disclosures and disclaimers, please visit the SPADE Indexes website at: http://spadeindex.com/about-spade-indexes/legal-and-disclaimers/
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