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By launching the equity fund Danske Invest Defence & Security, Danske Bank is now making it easier for investors to gain targeted exposure to defence and security in a well-structured manner that ensures high diversification within the theme.

The new fund invests broadly in companies from NATO countries, with a primary focus on the defence industry. A smaller portion of the portfolio focuses on technologies and services related to security, such as data security.

The portfolio is composed based on the following overarching objectives:

• 85% investments in defence and 15% investments in security.
• 60% investments in North America and 40% investments in Europe.

Quantitative approach ensures sharper exposure to defence
Thomas Gade, Head of Quant & Overlay at Danske Bank Asset Management, is responsible for the fund's investments. As he explains, it is not a traditional index fund, nor is it actively managed:

“The composition of the fund's investments follows predefined parameters, which, among other things, favour companies deriving a significant portion of their revenue from the defence industry. These companies dominate the portfolio, and the quantitative approach ensures sharper exposure to the defence theme. At the same time, the predefined parameters help keep ongoing costs low for investors,” he explains.

By combining European and North American equities, the fund achieves a high degree of diversification, which is difficult to accomplish with European equities alone.

“We overweight European equities in the portfolio compared to their market weight. However, the US still hosts many of the world's largest defence companies, which play a significant role in European defence and are likely to continue doing so for a long time,” says Thomas Gade.

We have long strengthened our strategic focus on defence
The new defence fund is just another step in our increased focus on defence and security across our asset management strategies. This is highlighted by Thomas Otbo, Chief Investment Officer at Danske Bank Asset Management:

“At Danske Bank Asset Management, we have long been highly attentive to how geopolitical developments and, in particular, the security policy agenda influence the global economy and financial markets. Over the past few years, we have on several occasions relaxed our restrictions on investments in defence companies, allowing us, for instance, to invest in all major European defence companies. Additionally, we have increased our exposure to defence across various investment strategies and portfolio solutions,” says Thomas Otbo.

A megatrend with attractive long-term potential
Although defence has already been a popular theme in financial markets and across our portfolios for some time, Thomas Otbo describes it as more relevant than ever – most recently illustrated by the overflights of foreign drones in Denmark and other European countries. However, the new fund is not launched with short-term gains in mind.

“We are not launching the fund based on short-term return expectations but because we believe that defence and security are geopolitical themes that will remain in focus for many years and offer attractive long-term potential. While there may be periods of fluctuations and corrections – for instance, if a ceasefire or peace agreement is reached between Russia and Ukraine at some point – we expect the underlying narrative of rearmament across NATO to remain intact. We view it as a megatrend,” says Thomas Otbo.

The new fund is especially aimed at retail investors
The Chief Investment Officer at Danske Bank Asset Management adds that retail investors are the primary target group for the fund.

“Many of our retail investment clients already have exposure to defence through other investment solutions with us, but there has also been demand for a more focused alternative. Additionally, we see that some retail investors have significant exposure to defence through just a few individual companies, and they could benefit from increased diversification via a fund like Danske Invest Defence & Security,” says Thomas Otbo.

*The full fund name is Investeringsforeningen Danske Invest Defence & Security – Accumulating, DKK.