How to Invest in the Future of Military Technology
It’s been said that the only guarantees in life are death and taxes, but there is another fact of life that has remained constant for much of human history: war. For millennia, people have fought with one another — over land, over titles and even over resources — and these conflicts eventually lead to the development of new weapons, military technologies and a worldwide industry dedicated to supporting these efforts.
We saw it around 400 BC, when Athens and Sparta, two of the most powerful city-states in ancient Greece, went to battle with each other in the Peloponnesian War.
We saw it again during the Roman conquest of Britain, which lasted until 400 AD.
And, of course, we saw it more recently during the American and French Revolutions in the 18th century.
In each of these instances, the outcome of these wars not only radically shifted the world’s power structure at the time, they also led to the development of new weapons and tactics. Battles that had once been fought with rocks and spears eventually moved on to bronze swords and arrows, then primitive cannons and firearms, to aircraft, today’s drones and more.
Over the last 3,000 years, the entire concept of war has evolved and today the military and defense industries are among the largest and most profitable on the planet. According to the Aerospace Industries Association (AIA), the U.S. aerospace and defense industry generated a total of $62.6 billion in federal and state tax receipts in 2015, the most recent year that data is available. That figure was up 2.9% from $60.9 billion in 2014 and $60.6 billion in 2013.
[Today’s warfare is virtual as well. Here’s what you need to know about Cybersecurity]
Overall, the defense industry posted more than $604 billion in sales in 2015, with end-use buyers (such as militaries, defense contractors and others) accounting for 58% or $349 billion of that total, followed by the industry’s supply chain (parts suppliers going to larger manufacturers) with the remaining 42% or $256 billion. Direct sales brought in an additional $181 billion in the U.S. alone.
By 2018, defense spending totaled $622 billion, accounting for about 3.1% of U.S. GDP.
And military technology is a strong job creator as well. Per the AIA report: “The U.S. Aerospace and Defense (A&D) industry is the world’s leading innovator and producer of technologically advanced aircraft, space and defense systems and supports one of the largest high-skill and high-wage workforces in the nation. Indeed, in 2015, the U.S. A&D industry supported nearly 1.7 million jobs in companies producing products and services for the industry’s commercial aerospace and defense manufacturing sectors. Of the jobs supported, 697,000 or 42 percent, were attributable to firms producing end-use goods and services, such as aircraft, space systems, land vehicles, ships and armaments, while 965,000, or 58 percent were attributable to the industry’s extensive supply chain. Combined, these jobs accounted for approximately two percent of the nation’s total employment base and 13 percent of the nation’s manufacturing workforce.”
What Is the Defense Industry?
At the highest level, Webster’s dictionary defines the term “military” as anything “relating to soldiers, arms, or war or relating to armed forces.” This can include both ground and air forces as well as naval forces as well as the work “performed or made by armed forces.” Simply put, military forces and the related defense industries are those dedicated to fighting wars and working toward national defense, regardless of country.
The industry that supplies the world’s militaries, as well as its defense contractors and private security forces, is broadly included in the defense industry, which manufactures and sells weapons and military technology. This includes everything from firearms, to military aircraft, vehicles, software, tactical clothing and more, as well as the servicing of military material, equipment and facilities and other logistical and operational support.
Defense and aerospace companies are involved in the development, production and marketing of “guns, artillery, ammunition, missiles, military aircraft, military vehicles, ships, electronic systems, night-vision devices, holographic weapon sights, laser rangefinders, laser sights, hand grenades, landmines and more.”
Notable companies in the military and defense sector include Boeing, EADS/Airbus, United Technologies, Raytheon, Northrop Grumman and General Atomics Aeronautical Systems. Symantec, McAfee, Trend Micro and EMC are among the industry’s key security software and technology providers.
Why Invest in Military and Defense?
To put it mildly, defense is one of the world’s largest, most stable industries. As long as there is conflict, as long as there is war, there will be demand for new weapons systems and technology.
That’s one reason why Deloitte, in its 2019 Global Aerospace and Defense Industry Outlook said: “In 2018, the global aerospace and defense (A&D) industry recuperated and experienced a solid year as passenger travel demand strengthened and global military expenditure continued to rise. The industry is expected to continue its growth trajectory in 2019, led by growing commercial aircraft production and strong defense spending.”
Among the growth catalysts cited by Deloitte are intensifying geopolitical tensions all over the world, changes to international trade agreements that have the potential to disrupt the global supply chain as well as M&A activity that’s sweeping across the industry as suppliers look to cut costs while also increasing production. All of these factors are expected to drive new demand for military equipment and defense spending in markets all over the world.
And that’s to say nothing about the new technologies that are redefining the space. Deloitte cites intelligence, surveillance, target acquisition and reconnaissance (ISTAR) technologies, as well as cybersecurity and new types of unmanned aircraft as key growth levers for military spending going forward.
How to Invest in the Military
Of course, it’s impossible for investors to participate in the military activities that are controlled by national budgets. But profits can still be found in the companies that are the direct recipients of that military spending, including weapons manufacturers, technology providers and more.
A search on Magnifi suggests that there are a number of different ways for investors to get involved in Military & Defense.
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The information and data are as of the November 13, 2019 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
