Since 24 February 2022, the world has changed. Three years ago, Russia invaded Ukraine, and the war is still ongoing. Now, the new US President, Donald Trump, is creating a new situation. „We are currently witnessing a tectonic shift in Europe’s security strategy“, says Michael Hünseler, Chief Investment Officer of LBBW Asset Management, in an interview with Börsen-Zeitung.

„The fact that Europe must now primarily take care of its own security is evident in the stock market“, he notes, pointing to the significant price increases in defence stocks over the past days, months, and years. The best example of this is the performance of Rheinmetall. On the Monday after Germany's federal election, Rheinmetall shares gained another 4.6%, reaching over 935 euros. Other German and European defence stocks have also risen significantly.

„Defence spending in Europe will increase significantly“, says Hünseler. Investments in security are not just a question of timing, but represent a growth trend. Russia’s attack on Ukraine in February 2022 marked a turning point and led to a new threat landscape. „This is no longer just a regional conflict – it’s about the defence of Europe“, emphasises Hünseler. „Security is also becoming an increasingly important issue for the public.“ This shift is reflected in rising demand for security-related investments.

„The alliances that have mattered until now may not be sufficiently reliable – for Europe this means taking greater responsibility for its own security“, explains Hünseler. „Interestingly, the stock markets are reflecting this as well. Since the beginning of the year, European defence stocks have significantly outperformed, especially compared to American ones.“

Hünseler is convinced that Europe will allocate much more money to the military. Traditionally 2% of GDP was considered a rough benchmark for defence spending, but it has now become evident that levels closer to 3% of GDP – or even more – are necessary. There are even calls for 5%.

"Europe has no other choice – it must take responsibility for its own security“, says the asset manager. „We can be certain that the move toward greater independence and self-sufficiency in defence will not fade away.“

To invest in security, LBBW Asset Management launched a dedicated thematic fund, „Sicher Leben“, at the end of December 2024. „For our Sicher-Leben-fund, we have developed a three-pillar concept. Defence is one pillar, cybersecurity is another, and the third pillar focuses on public and personal security“, explains Hünseler. „Why is this so relevant? Cybersecurity, for example, has become a massive growth market", something that is not always fully appreciated.

IT security is extremely important. „Since 2020, we have observed a massive increase – by up to 100% – in spending on security software, risk management, data security, cloud security, and data protection in general“, states the capital markets strategist. „This issue affects practically everyone.“

„Europe has insufficient production capacity for defence – due to high utilisation on one hand, and a now persistently high demand on the other, investment in security is increasing“, says Hünseler. „The result will be an expansion of capacities, benefiting companies in the defence industry. This will lead to a significant increase in profit forecasts, supporting valuations. But more importantly, public opinion on defence has fundamentally changed.“

The fund product relieves investors of the burden of selecting the right stocks. „We invest broadly across the three pillars and actively select individual stocks based on research“, notes Hünseler. „We actually believe that the entire security sector is only beginning to gain real momentum. The necessity to act is undeniable – especially after the developments seen in recent days at the Munich Security Conference, and on the geopolitical stage. Thus, this is not about timing. It’s about a growth trend.“