Strategic Reallocation to Defense and Security Assets: Danske Bank's New Fund in a Geopolitical Era

Danske Bank's launch of the Danske Invest Defence & Security fund in 2025 marks a pivotal shift in institutional investment strategies, aligning with a global defense spending supercycle driven by escalating geopolitical tensions. The fund, which allocates 85% of its portfolio to defense companies and 15% to security-related technologies, is structured to capitalize on the sector's resilience amid volatile markets. With 60% of assets in North America and 40% in Europe, the fund reflects Danske Bank's recognition of the dual drivers of U.S. military modernization and Europe's urgent rearmament needs.

A Sector in Overdrive: Defense Spending Trends in 2025

The fund's timing is inextricably linked to a surge in global defense budgets. NATO's 2025 defense expenditure is projected to reach $1.6 trillion, with spending up 15% year-on-year-the second-largest annual increase in a decade, according to Stars and Stripes. European nations, particularly Germany, are leading this charge. Berlin's $110 billion defense budget for 2025 positions it as the world's fourth-largest spender, while Poland and other Eastern European allies exceed the NATO 2% GDP target, as noted by Danske Bank. The U.S., despite its $980 billion budget, faces growing pressure to address capability gaps in high-tech systems as European allies prioritize strategic autonomy, Bloomberg reports in its coverage.

Globally, defense spending hit $2.7 trillion in 2024, with over 100 countries increasing budgets. BlackRock describes this as a "new era of global defense spending," driven by AI-driven warfare, hypersonic systems, and unmanned platforms. Europe's defense budgets are expected to grow at 6.8% annually from 2024 to 2035, outpacing the U.S. (1.7%) and China (3.1%), according to Danske Bank's analysis. This trend is reinforced by NATO's long-term goal of reaching 5% of GDP in defense spending by 2035, including 1.5% for infrastructure, as reported earlier by Stars and Stripes.

Strategic Allocation: Why Defense and Security?

Danske Bank's fund is designed to offer investors a low-cost, diversified entry into a sector increasingly decoupled from traditional economic cycles. BlackRock has noted that defense stocks have historically demonstrated resilience during geopolitical crises, with lower volatility compared to broader equity markets. The fund's quantitative approach-favoring companies with over 50% revenue from defense contracts-ensures sharp thematic exposure while mitigating overconcentration risks, according to Danske Bank's fund documentation.

The 15% allocation to security technologies, including cybersecurity and data protection, further future-proofs the portfolio. As cyber threats and hybrid warfare dominate global security agendas, this segment is projected to grow at a 12% CAGR through 2030, per the Defense Market Quarterly Review. Danske Bank's decision to remove over 200 defense-related companies from its exclusion lists since 2024 underscores its confidence in the sector's long-term viability, a point also highlighted in the Defense Market Quarterly Review.

Risks and Opportunities in a Fragmented Landscape

While the sector's growth is compelling, investors must navigate challenges. Supply chain vulnerabilities, regulatory shifts, and geopolitical unpredictability pose risks, particularly for firms reliant on single-country contracts. For instance, U.S. defense procurement remains heavily concentrated among four contractors (Lockheed Martin, General Dynamics, Northrop Grumman, and RTX), which account for 53% of fiscal 2024 contracts, per Danske Bank's reporting. However, Danske Bank's fund mitigates this by diversifying across 30+ companies, including European firms like Rheinmetall and Leonardo, which are benefiting from a $50 billion artillery market, according to Danske Bank.

The fund also aligns with Danske Bank's broader strategy to finance Europe's rearmament. Chairman Martin Blessing has emphasized the financial sector's role in enabling defense infrastructure, from shipbuilding to missile defense systems, as reported by Bloomberg. This dual role-as both investor and enabler-positions the bank to capitalize on a $300 billion land systems market and a $220 billion naval defense opportunity in Europe through 2030, figures cited by Danske Bank.

Conclusion: A Hedge Against Uncertainty

Danske Bank's Defence & Security fund offers a compelling case for strategic reallocation in 2025. With global defense spending on a supercycle trajectory and geopolitical risks persisting, the fund's structure-combining high-conviction defense exposure with technological diversification-provides a balanced approach to capital preservation and growth. As BlackRock notes, defense assets are "less correlated to traditional economic cycles," making them an attractive hedge in an era of uncertainty. For retail investors seeking to align with long-term geopolitical trends, this fund represents a timely and well-structured opportunity.