Asset allocation model
THE DEFENSE INDUSTRY
The defense industry is reliant on a hyper-specific, traditionally reliable customer: government. Lucrative deals for defense contractors – the United States government, who accounts for 35% of military expenditure worldwide, continues to propose defense budgets in the hundreds of billions of dollars and tends to spend its money domestically – means a potential wealth of successes for investors.The unique nature of government contracting means that, once contracts are awarded, a level of transparency exists that is far from guaranteed in other industries. Companies have clear-cut revenue streams and timelines, making their behavior and prospects more predictable (and thus a safer bet for investors). There is another upside as well: innovation. Military modernization efforts around the world are spurring the development of new technologies, including cybersecurity to drones, and strong research and development initiatives mean new products are always in the works.The biggest players in the space tend to be dominant, mixing manufacturers and service providers. Traditional powers include Boeing, Raytheon, Lockheed Martin, and Northrop Grumman on the manufacturer side, as well as Leidos, Booz Allen Hamilton, and others on the service side. Smaller companies can make for unique (and profitable) investment opportunities, particularly if their offerings align with government needs.