U.S. defense stocks are set to be boosted by the world’s largest sovereign wealth fund investing in the sector for the first time in over 20 years.
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The $2.1 trillion Norwegian sovereign wealth fund is ready to don its Viking warrior helmets and start investing in major defense firms from 2027.
Ethical Restraints
The fund has amassed its wealth over the decades by storing up the profits made from North Sea oil and its investment strategy.
According to Fortune, the equity portion of the fund, which makes up 70% of the total, holds stakes in the 8,700 listed companies in 44 countries that comprise the FTSE Global All Cap index.
The move could see the fund take stakes in 14 defense companies with a combined market value of about $1 trillion. It can’t currently invest in these companies because as they make components of nuclear weapons they don’t fit with the fund’s ethical guidelines.
However, in early November the Norwegian Parliament voted to review these guidelines which have been in place since 2004.
The companies that could become open to the fund included Lockheed Martin (LMT), Boeing (BA), Northrop Grumman (NOC), and General Dynamics (GD).
Defense stocks have also been out of favor given the rise of ESG investing in recent years. But the Ukraine and Middle Eastern wars have changed the dial somewhat with the argument that defense can be a force for good if they help fight totalitarian states or terrorists.
Trump Pressure
The pressure from President Trump for Europe to spend more on their own security has also placed a bigger target on the defense sector.
Most defense stocks have been boosted by the Ukraine and Middle East conflicts as seen by the share price hikes of leading firms this year.
“Freedom is more important than ESG,” Knut Kjaer, the fund’s founding CEO, who served between 1998 and 2007, told Reuters. “Europe has to defend itself from the aggression from Russia. Why should we not invest in weapons?”
Norway was buying arms from the very same companies it has forbidden its fund from investing in, he added.
The guideline recommendations will be made by the government in October next year and be voted on in Parliament in June 2027.
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