Ian Cowie: the investment trusts battling for supremacy

Our columnist asks which names could benefit from another defence boost.

23rd July 2026 11:44

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Shares in arms manufacturers advanced strongly on Tuesday after the appointment of John Healey as chancellor.

He resigned as defence secretary last month after calling for more spending on the Armed Forces and is now in a position to do something about it.

Nick Britton, research director of the Association of Investment Companies (AIC), assessed the winners among shares listed on the London Stock Exchange and said: “Babcock International Group (LSE:BAB), BAE Systems (LSE:BA.) and QinetiQ Group (LSE:QQ.) shares all rose sharply on the news of Healey’s appointment.

“The assumption is that the new chancellor’s vocal stance on defence spending points to higher budgets for the military now that he’s moved to Number 11 Downing Street.”

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Lizzy Galbraith, senior political economist at Aberdeen Investments, agreed: “New UK Prime Minister Andy Burnham undertook an extensive cabinet reshuffle, with former defence secretary Healey the surprise chancellor.

“His appointment raises expectations of further defence spending commitments. He resigned in June after failing to secure a commitment from the government to raise defence spending to 3% of gross domestic product (GDP) - a measure of economic output - by 2030.”

But picking individual defence shares is risky, as demonstrated by Babcock’s decline earlier this year after it announced a £140 million exceptional charge on its Type 31 Frigate ship-building programme, which is expected to cut operating profits by 19% to £293.3 million.

By contrast, several investment trusts offer access to this theme with less stock-specific risk.

Britton explained: “For investors who don’t have time to analyse the merits of individual defence stocks, investment trusts offer exposure to this sector within diversified portfolios.”

For example, BlackRock Greater Europe Ord (LSE:BRGE), with total assets of £639 million, has just over 7% of its net asset value (NAV) invested in listed defence shares, led by Safran SA (EURONEXT:SAF) - the French aerospace company - and MTU Aero Engines AG (XETRA:MTX) - the German jet propulsion specialist.

Closer to home, CT UK High Income Ord (LSE:CHI), with total assets of £161 million, and JPMorgan Claverhouse Ord (LSE:JCH), with assets of £590 million, both have 6.3% of NAV invested in defence.

Rolls-Royce Holdings (LSE:RR.), Britain’s biggest aerospace engines manufacturer, which is entirely separate from the luxury motorcar manufacturer of similar name, ranks among the top 10 assets of both funds.

But an urgent need to improve national security is felt most keenly on the Continent, especially among countries bordering Russia after its full-scale invasion of Ukraine.

European Opportunities Trust (LSE:EOT), a £446 million fund, has just short of 6.3% of NAV invested in defence, including Dassault Systemes SE (EURONEXT:DSY), the French aerospace technology specialist.

Back in Britain, Schroder UK Mid Cap Ord (LSE:SCP) fund with £265 million in assets, has 5.8% of NAV in armaments manufacturers. Its holdings include the defence technology company Qinetiq, mentioned earlier, and the explosives-maker Chemring Group (LSE:CHG).

But the latter demonstrates the difficulty of investing in single trading companies, despite the favourable backdrop of rising expenditure. Chemring shares suffered a setback last month after it announced weak sales would trim its operating profits by 8%.

Similarly, the recent performance of the above investment trusts varies widely.

JPMorgan Claverhouse is easily the most successful over the last year with a total return of 24%, following 64% over five years and 160% over the last decade.

This fund also yields 3.8% dividend income, which has increased by an annual average of nearly 4.2% over the last five years, but it continues to be priced at a modest discount of 2.2% below its NAV.

CT UK High Income is next best among the above five funds for defence exposure, having gained 17% over the last year, following 58% over five years and 115% over the decade.

Better still, it yields just over 5.1% dividend income, albeit rising modestly by 2.4% per annum, with its ordinary shares priced at par to NAV.

By contrast, despite having the highest allocation of assets to defence among these five, BlackRock Greater Europe is the laggard in this group, having shrunk shareholders’ assets by 0.4% over the last year and minus 2.4% over five years, following a more satisfactory gain of 158% over the decade.

Its modest yield of 1.8% rising by just over 3% per annum with shares priced 7.6% below NAV might tempt bargain-hunters hoping for recovery.

Seraphim Space Investment Trust Ord (LSE:SSIT), which is my third-most valuable holding, is excluded from the above analysis, despite having three-quarters of its NAV allocated to defence technology, because the underlying assets are not listed on any stock market.

Even after recent setbacks, Seraphim shares are up 80% over the last year and 42% over five years, having been launched in July 2021. 

Looking forward, America’s unpredictable foreign policy in Europe and the Middle East is prompting increased expenditure on defence.

However much investors might wish for peace, it looks as if violent conflict will continue to produce winners and losers on the stock market as well as the battlefield.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in BAE Systems and Seraphim Space Investment Trust as part of a diversified global portfolio of investment trusts and other shares.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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