Click here for recent Market Insight reports on our LONG Aerospace & Defense theme →

June 18, 2021

Adding LONG Aerospace & Defense

This week’s summit of NATO leaders came amid a tense geopolitical backdrop. China is continually stepping up military aircraft incursions into Taiwanese airspace and Russia has yet to significantly unwind a buildup of troops along the Ukrainian border.

Ukraine risks becoming a global flashpoint now that it seems official NATO membership for the nation may be imminent. Ukrainian President Volodymyr Zelensky mistakenly believed his nation was indeed granted member status earlier this week, tweeting that NATO had agreed his country would join the alliance. It wouldn't be long before President Biden and other leaders shot down that assertion, but the confusion may signal that more serious talks about Ukraine are happening behind closed doors.

Ukrainian membership in NATO would mark a significant shift in the geopolitical balance of Eastern Europe since the alliance’s Article 5 clause guarantees collective defense of every member state; an attack against one is in an attack against all.

In the Middle East, the Israeli-Palestinian conflict has re-erupted. The breakdown of a tenuous ceasefire deal comes a month after the announcement of a massive $735 million arms deal between the US and Israel. That was followed up by a sale of US weaponry to Taiwan this week, worth $436.1 million. 

The Biden administration’s first military budget of more than $700 billion will be almost equal to the prior year, but has made room for plenty of spending to counter upgrades China has made to their own military. However, the US budget does fall short of Russia and China’s combined military spending.

A ramping up in geopolitical anxiety around the globe will undoubtedly bring heightened attention to the aerospace and defense sector, specifically key US defense contractors. In light of this, MRP will be adding LONG Aerospace & Defense to our list of themes, effective today. We will track the performance of this theme with the SPDR S&P Aerospace & Defense ETF (XAR).