DPAM’s Johan Van Geeteruyen on why the sector’s future will be determined less by geopolitics and more by execution

Few investment themes have attracted as much attention in recent years as defence. Rising geopolitical tensions, increasing military budgets and Europe’s push for strategic autonomy have driven strong performance across the sector, making defence an increasingly common allocation in institutional portfolios.

Yet as the initial re-rating phase matures, investors are facing a more fundamental question: can defence evolve into a strategic portfolio allocation, or does it remain primarily a tactical trade linked to geopolitical events?

According to Johan Van Geeteruyen, Head of Institutional Portfolio Management at DPAM, a balanced manager with more than 30 years of industry experience, the answer depends on whether the sector can transform political commitments into sustainable economic growth.

“Investors and analysts are increasingly looking at the fundamentals of defence companies rather than simply reacting to geopolitical events,” he says. 

That shift has already become visible in market behaviour. While geopolitical developments remain important, investors are paying closer attention to earnings, order intake and execution. Recent tensions in the Middle East, for example, did not trigger the broad rally in defence stocks that historically always followed such an event. Instead, markets focused on mixed quarterly results and concerns about order development. 
 

Portfolio Day 2026
Johan Van Geeteruyen will speak at Portfolio Day 2026 about “Can defence earn a strategic place in portfolios?”. Join us at Portfolio Day on Thursday, 10 September. Register here.

Higher budgets are only the starting point

The long-term investment case for defence is often built around a simple premise: governments are spending more.

However, Van Geeteruyen argues that higher budgets alone are insufficient.

“What matters is seeing a sustainable trajectory of higher defence spending and, equally importantly, that multi-year commitments are actually honoured,” he says. 

The challenge is that increased spending must ultimately translate into production, revenues and profits. That requires substantial investment throughout the defence ecosystem, from prime contractors to specialised suppliers.

They need confidence that demand will remain durable before committing capital to debottlenecking, new facilities, equipment and personnel. The same applies to suppliers further down the value chain.

“You need those orders to convince companies to scale up and expand,” Van Geeteruyen explains. “The same applies to suppliers. They also need the confidence to invest in additional capacity.” 

This dynamic is already evident among European defence leaders such as Rheinmetall, Kongsberg Gruppen and the likes, which are benefiting from rising demand but must continue expanding production capabilities to meet future requirements.

Industrial capacity will separate winners from losers

While defence budgets often dominate the headlines, industrial capacity may prove to be the more important investment variable.

Record order books are encouraging, but they only create value when converted into revenues and earnings. For that reason, long-term procurement agreements and framework contracts are essential. They provide the visibility companies need to invest confidently in additional capacity. 

The next phase of defence investing is therefore likely to be defined by execution rather than demand.

Companies that can scale production efficiently while protecting margins will be best positioned to benefit from structural increases in military spending. Those that struggle with supply-chain bottlenecks, labour shortages or operational constraints may find it more difficult to translate strong order books into shareholder value.

Europe’s coordination challenge

Another key factor is Europe’s fragmented defence landscape.

Despite growing political consensus around strategic autonomy, procurement remains largely organised at national level. This limits economies of scale and creates inefficiencies throughout the industry.

Van Geeteruyen believes greater European coordination and standardisation is critical.

“Joint procurement is particularly important. Companies need visibility through framework agreements that provide recurring orders and the cash flows necessary to support investment decisions,” he says.

Standardisation will enable better interoperability and reduction of production lead times in order to speed up delivery. 

More coordinated procurement programmes would create greater predictability for the industry while supporting long-term investment decisions. This is particularly relevant for companies such as Thales, Saab and Kongsberg Gruppen, which increasingly operate within multinational European programmes. 

At the same time, European funding initiatives could further strengthen the sector’s industrial base by supporting capacity expansion and strategic investment. 

ESG attitudes are changing

The sector’s relationship with ESG is also evolving.

For years, many institutional investors excluded defence companies from investment universes on sustainability grounds. Since the invasion of Ukraine, however, perceptions have gradually shifted as defence is increasingly viewed through the lens of security and resilience.

According to Van Geeteruyen, broader acceptance within ESG frameworks could lower financing costs and expand the pool of capital available to the sector. 

While the debate remains ongoing, greater institutional acceptance would remove an important structural constraint on future growth.

Conclusion
The investment case for defence is entering a new phase.

Over the past three years, the sector has benefited from a powerful geopolitical tailwind. Going forward, investors are likely to focus less on headlines and more on execution: industrial scaling, procurement efficiency, earnings growth and the ability to convert record order backlogs into sustainable cash flows.

Whether defence ultimately earns a strategic place in portfolios will depend on the industry’s ability to deliver on those expectations. Higher spending, stronger European cooperation, expanding industrial capacity and supportive financing conditions all need to come together. 

As Van Geeteruyen puts it: “If all those elements materialise, defence can evolve from a geopolitical trade into a strategic allocation with a structural risk premium.” 

For institutional investors, that is the real question. The future of defence investing will be determined not by the next geopolitical headline, but by whether the industry can build the foundations required to justify a permanent place in long-term portfolios.