After Germany and the EU agreed to hike defence spending, amidst growing geopolitical tensions, BNP Paribas Asset Management (BNPP AM) has announced a new fund to capitalise on the new investment landscape.

BNP Paribas Asset Management (BNPP AM) has launched its BNP Paribas Europe Strategic Autonomy fund, a European thematic equity fund designed to harness the evolving geopolitical landscape and Europe's growing emphasis on security, resilience, and self-sufficiency.

Rising geopolitical tensions and uncertainty have led European governments to increasingly focus on the importance of strategic independence. As such, several initiatives backed by large scale investment plans valued at more than €1.5 trillion ($1.7 trillion) have recently been announced, both by the European Commission and European governments. These plans should drive higher levels of growth in coming years in key themes and sectors, such as defence, resource independence, industrial resilience, technology and cybersecurity.

In this context, the BNP Paribas Europe Strategic Autonomy fund aims to deliver returns by investing in companies that will benefit from Europe's increasing focus on autonomy, providing investors with an opportunity to tap into a new era of growth and returns.

With a concentrated portfolio of 50 positions, the fund will focus on companies that are benefitting and/or will benefit from structural changes, with an emphasis on the themes of defence, resource independence, industrial resilience, cybersecurity, cloud computing and digital infrastructure, and food and healthcare security.

"We believe that the BNP Paribas Europe Strategic Autonomy fund offers a unique opportunity for investors to tap into the move to increase resilience against geopolitical shocks and supply chain disruption," Lazare Hounhouayenou, portfolio manager for the fund, said. It is available for investors in Austria, Belgium, the Czech Republic, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Norway, Portugal, the Netherlands, Spain, Slovakia, Sweden, and Switzerland.

BNP Paribas Europe Strategic Autonomy is classified as Article 8 under the EU’s Sustainable Finance Disclosure Regulation (SFDR). The fund integrates environmental, social and governance considerations into the investment process and applies BNPP AM’s Responsible Business Conduct policy.

“As sustainable investors, ESG integration lies at the heart of our investment process,” Sindhu Janakiram, ESG analyst and aerospace and defence lead, BNPP AM Sustainability Centre, added. “The BNP Paribas Europe Strategic Autonomy fund was developed in tandem with BNPP AM’s Sustainability Centre through the incorporation of team research and data outputs. We also utilise BNPP AM’s Responsible Business Conduct policy to ensure that the fund’s portfolio companies meet industry-leading standards.” 

Other investment managers have also been launching defence-focused funds. WisdomTree, for instance, recently launched a new exchange-traded fund: The WisdomTree Europe Defence UCITS ETF (WDEF), listed on Börse Xetra, Borsa Italiana and the London Stock Exchange.

“Defence and security are underrepresented in many portfolios and have faced decades of underinvestment in Europe, resulting in a significant capability gap. A structural shift is underway in Europe as nations increase defence budgets to meet NATO targets and respond to geopolitical challenges,” Pierre Debru, head of research, Europe at WisdomTree, said in a note.

The EU's “Rearm Europe” package involves the activation of the national safeguard clause of the Stability and Growth Pact, enabling EU countries to increase their defence spending by an average of 1.5 per cent of GDP, or €650 billion that could be released over the next four years. It also entails a "new instrument" to provide €150 billion in loans to member states to finance joint defence investments in pan-European capabilities. Berlin also proposes to exempt defence from a budget restriction; it will launch an off-budget infrastructure fund of €500 billion over the next 10 years. See more commentary here.