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Finserve Global Defence & Security Fund dropped 4.02 per cent during July. The month was characterised by continued volatility within the defence sector and profit-taking following a longer period of strong share price performance. At the same time, capital continued to flow towards other growth areas, above all technology and AI.
We consider that the decline primarily reflects a changed market sentiment and greater caution regarding companies' ability to deliver on high expectations rather than a deterioration in the sector's long-term fundamentals. Following an initial phase driven by rising defence budgets, the sector is now entering an execution phase. Focus is shifting from political ambitions to companies' ability to convert record-breaking order books into profitable growth. Based on the quarterly reports we have seen during the summer, our assessment is that there are good conditions for a strong H2.
New NATO commitments strengthen the demand outlook
The structural demand remains strong. At the NATO summit in Ankara on 7–8 July, member countries announced new defence procurements of over 50 billion dollars and continued investments in joint production capacity. A particular focus was placed on drones and counter-drone systems, in which NATO countries intend to invest over 40 billion dollars over the next five years. Furthermore, a joint marketplace is to be established for NATO-tested and interoperable systems, which can contribute to faster and more coordinated procurements.
The message shows how defence policy is gradually moving from overarching budget targets towards clearer procurement priorities, which strengthens the industry's long-term demand visibility.
The Q2 reports confirm the fundamental development
The quarterly reports published during the summer give clear signs that the companies' capacity investments are beginning to have an impact on earnings. The majority of defence companies in our portfolio exceeded the market's profit and revenue expectations.
Several reports illustrate the broad fundamental strength:
- Saab Organic sales increased by 29.8 per cent and operating profit rose by 41 per cent. The order backlog reached approximately SEK 318 billion.
- RTX: Organic sales increased by 16 percent and earnings per share by 21 percent. The order backlog reached a record-high 289 billion dollars, of which 119 billion was in defence.
- Kongsberg Revenue increased by 31 percent and EBIT by 49 percent. The EBIT margin reached a record-high 16.1 percent and the order backlog amounted to NOK 158 billion.
- Dassault Aviation Revenue increased by 46 per cent during the first half of the year, driven by increased Rafale deliveries and a recovery in Falcon. The company's revenue beat market expectations by 18 per cent.
- General Dynamics Revenue increased by 8.1 percent to 14.1 billion dollars and earnings per share beat market expectations by 7 percent. The order backlog increased by 31.7 percent to a record-high 136.5 billion dollars.
The most important signal is not solely that order books continue to grow. Several companies are simultaneously succeeding in raising production, improving profitability, and strengthening cash flows. This indicates that the industrial scale-up is gradually developing into an earning cycle and not remaining merely a political ambition.
More attractive valuations ahead of the next phase
A decline in share prices combined with stronger earnings and estimates has brought valuations down. European defence companies are now trading at a median P/E of approximately 23 times for 2027[1], roughly in line with the broad US stock market[2]. The combination of lower multiples and higher growth estimates has thus improved the risk/reward ratio in our assessment.
We are entering the second half of the year with a clearly positive view of the sector's long-term conditions. We see the greatest potential in companies that can combine high demand with strong production capacity and improved margins. At current valuation levels, we therefore see attractive opportunities to selectively strengthen exposure to the parts of the sector where fundamentals are strongest.
| July 2026 – Highest development | July 2026 – Lowest growth | ||
| CSG | 29% | Planet Labs | -38% |
| Frequentis | 23% | Rocket Lab | -36% |
| Oceaneering | 20% | Electro Optic Systems | -35% |
| MILDEF | 18% | AST SpaceMobile | -34% |
| Indra Sistemas | 18% | DroneShield | -30% |
[1] – FactSet. P/E NTM, STOXX Europe Targeted Defence Index. 2026-08-03
[2] RBC Capital Markets, The Pulse of the Market. P/E NTM S&P 500 & Nasdaq. 27/08/2026
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