Strategic Allocation in the Age of Geopolitical Uncertainty: The Rise of the Security and Defence Sector

The world is navigating an era of profound geopolitical uncertainty, marked by escalating conflicts, shifting alliances, and the rapid evolution of technology. In this environment, the security and defence sector has emerged as a critical pillar of both national resilience and long-term investment opportunity. The launch of Swedbank Robur's Security and Defence Fund in September 2025Swedbank Robur launches the fund Security and Defence^[1] underscores institutional confidence in this sector, reflecting a strategic pivot toward assets that align with global security imperatives while offering robust growth potential.

A Sector Shaped by Geopolitical Realities

The defense industry is no longer a niche market but a central force in global economic and political dynamics. According to a report by the European Commission, defense budgets in Europe are projected to grow at an annual rate of 6.8% from 2024 to 2035, outpacing growth in the U.S., Russia, and ChinaDefense Budgets in an Uncertain Security Environment - CSIS^[2]. This surge is driven by the war in Ukraine, Indo-Pacific tensions, and the urgent need for modernization. Germany's 2025 defense budget, for instance, is expected to reach $110 billion, making it the fourth-largest military spender globallyDefense Budgets in an Uncertain Security Environment - CSIS^[2]. Such trends are mirrored across NATO allies, with countries like Poland and the Netherlands accelerating procurement of advanced systems, from air defense to AI-enabled platforms2025 Aerospace and Defense Industry Outlook - Deloitte^[3].

The sector's appeal lies in its dual role as a stabilizer and a growth engine. Unlike many cyclical industries, defense spending remains resilient during economic downturns, as governments prioritize security over fiscal austerity. Furthermore, technological innovation—ranging from cyber warfare to autonomous drones—is creating new value chains, attracting both public and private capital. As stated by Deloitte in its 2025 aerospace and defense outlook, “The integration of AI, 3D printing, and space-based systems is redefining the sector's competitive landscape, offering investors exposure to high-growth subsectors”Global Defense Market Trends: How Geopolitical Shifts Are Shaping Opportunities - Morningstar^[4].

Swedbank Robur's Fund: A Blueprint for Institutional Confidence

Swedbank Robur's Security and Defence Fund, launched on September 26, 2025Swedbank Robur launches the fund Security and Defence^[1], exemplifies how institutional investors are capitalizing on these dynamics. The fund's active management strategy targets 20–40 companies across defense, cybersecurity, and civil protection, with a focus on firms contributing to “resilient societies” aligned with UN Sustainable Development Goal 16Swedbank Robur launches the fund Security and Defence^[1]. This approach not only addresses geopolitical risks but also taps into the sector's long-term structural growth.

The fund's emphasis on diversification—spanning aerospace, cyber solutions, and infrastructure protection—mitigates risks associated with overexposure to specific platforms or regions. Its management team, including Agnes Virf and Patric Näslund, brings expertise in navigating the sector's complex supply chains and regulatory environmentsSwedbank Robur launches the fund Security and Defence^[1]. With a 1.25% management fee, the fund balances cost efficiency with the need for specialized insight, a critical factor in a sector where long lead times and policy shifts can disrupt returnsPE Defense Investment Surges in Early 2025 - S&P Global^[5].

Strategic Allocation: Balancing Opportunity and Risk

While the defense sector offers compelling growth prospects, investors must remain cognizant of its unique challenges. Policy volatility, customer concentration (e.g., reliance on government contracts), and geopolitical miscalculations can introduce uncertainty. However, these risks are counterbalanced by the sector's defensive characteristics and its alignment with global megatrends.

For instance, the European Commission's Security Action for Europe (SAFE) initiativeDefense Budgets in an Uncertain Security Environment - CSIS^[2] and the U.S. Department of Defense's focus on AI and hypersonic systemsGlobal Defense Market Trends: How Geopolitical Shifts Are Shaping Opportunities - Morningstar^[4] highlight the sector's institutional tailwinds. Moreover, private equity investment in defense has surged in 2025, particularly in North America, as firms seek to capitalize on procurement backlogs and technological innovationPE Defense Investment Surges in Early 2025 - S&P Global^[5].

Conclusion: A Sector for the Long Haul

The security and defence sector is no longer a peripheral consideration for investors but a core component of a diversified portfolio in an uncertain world. Swedbank Robur's Security and Defence Fund encapsulates this shift, offering a vehicle to participate in a sector that is both a hedge against instability and a driver of innovation. As geopolitical tensions persist and technological frontiers expand, strategic allocations to this sector—backed by rigorous analysis and institutional expertise—will likely prove indispensable for long-term value creation.