8 hours ago
Trump to meet Zelensky at WH: US vs. European defense stocks
President Trump will meet with Ukrainian President Zelensky and European leaders at the White House on Monday.
Defense stocks are in focus as the talks continue. Gabelli Funds portfolio manager of the firm's aerospace and defense ETF (GCAD), Tony Bancroft, shares his expectations and discusses the difference between US and European defense stock names.
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Always good to get your uh, your take on this kind of stuff, Tony. As we see this meeting today from your perspective, what are you going to be most closely watching in these talks in terms of the implications for the aerospace and defense sector?
Hey, really great to be back. I I think the biggest thing to watch is to sort of see where these two come out. Unfortunately, I'm a little bit pessimistic on, um, and you know, on the outcome of this. It's, I think it's probably too, too far over bridge to cross to get all these parties to agree, uh, and hopeful as, I think everyone wants to be. I think in the long run, uh, there's multiple factors here. One, uh, rearming the the, uh, the arsenals, right? And the US, you know, we've heard stories. US essentially, um, expended or Ukraine via US, um, expended seven years of of High Mars, Stinger and javelin weapon systems in one year of seven years or production in one year. And then you have, uh, you know, then you have the bigger issue is the pivot to the Pacific. So the defense spending really is focused on that in the long run, as much as I think, uh, you know, obviously the near term alligator to the boat and issue, the longer term is, uh, US defense companies are going to continue to have to build a lot of weapon systems, new weapon systems, replenish legacy systems, uh, going forward, no matter, unfortunately, no matter what the outcome of this meeting and then follow-on meetings with, uh, potentially with Russia.
Well, and is that also in part because of the commitments that President Trump has tried to secure from NATO in terms of increasing their um, defense spending on their own spending on their own defense, which is a bit of a switch?
Yeah. I mean, you know, there's no question, you know, NATO as a whole, except for US and some other smaller members have, uh, you know, vastly underspent, um, what are, you know, the historic 2% GDP target. Now the three and a half percent on procurement and 5% total with infrastructure included, you know, we're we're way behind that curve, including the US, and there's going to be need to be a big rearmament, uh, and build up, uh, post the, you know, the Cold War peace dividend. So that dynamic is happening is probably not going to change, no matter what comes from this after, you know, essentially, um, you know, Putin uh, taking, taking Crimea into 2014 and, uh, you know, going further in 2022. Right. You know, and the bigger issue is as much as European defense companies are going to have to start building out infrastructure, you know, and capacity, there's still, you know, historically 60 almost 65% of European defense spending is going to the United States, going to US defense companies. So the US is really the the the the the weight in the room when it comes to, uh, industrial capacity for defense, um, defense, you know, defense programs. And that's going to likely continue going forward. We have the best technology, we have the capacity, we have the manpower to build these systems out. And that's why Gcad, our commercial aerospace and defense ETF, ticker Gcad, is going to be, um, you know, going to be focused on defense spending, uh, particularly US in the long term.
Right. So Tony, from a stock perspective, do you think that there is more upside at this point for the US defense names or the European defense names?
You know, the Europeans have run up, uh, you know, drastically over the last since 2022 essentially. Um, and so they've had a great run. They're probably going to continue to do pretty well, but they're going to have some big comps to, uh, to deal with. Uh, the US as well has obviously gone up, we're having a great year, our fund is up almost 30% this year as well as most of the aerospace and defense, a lot of the names. And I think unfortunately, that's just going to have to continue. I I I, you know, and again, just to frame it, historically post-World War II, where we were spending over 50% of GDP on, on defense. After that, the defense spending was about 6% of GDP, and now we're at about three and a half percent. Now it's expected to go higher, but, uh, overall, we actually on if you look at on a long-term basis, we're underspending on our our defense budget.
