Weekly Barometer 25 janvier 2012
Global Defense & Security Certificate – The Contribution to Peace
July 2017
ATONRÂ PARTNERS SA 12, Rue Pierre Fatio – 1204 GENEVA – SWITZERLAND - Tel: + 41 22 310 15 01 http://www.atonra.ch
Global Defense & Security Certificate 2
Investment Case
➢ The best way to maintain peace is to have a strong defense. The global geopolitical instability
and Donald Trump’s presidency are major positives for defense spending
➢ While Trump’s initiatives will spark +10-15% growth on US defense spending, Trump’s election is
also having some knock-on effects on US allies, specifically on NATO members
➢ Even if the US defense budget and most budgets across the world are well balanced between
air, sea and land, most of the big dollars over the next few years will be spent on submarines
and ships, next-generation aircrafts and unmanned vehicles
➢ As new projects come online, contractors should benefit from significant revenue upside
➢ Developments in the civil field from space exploration to biometrics or cyber security are of
utter importance given their close links with defense
Global Defense & Security Certificate details
✓ Issuing bank: Natixis, Calculation agent: Natixis SA
✓ ISIN: XS1317057278
✓ Currency: USD
✓ Fees: 1.65% management fee + 15% performance fee, high water mark
✓ Bloomberg ticker: NXSRGDEF
Global Defense & Security Certificate 4
Innovation Shapes Defense and Security
➢ Many tech innovations come from Defense
✓ the GPS positioning system was first created by the US
Department of Defense (DoD)
✓ iRobot, before developing consumer vacuum robots, had
deployed the first ground robot used by US Forces in
conflicts
➢ Governments are making scientific and engineering research a
high priority
✓ the EU plans to create a common research fund for new
military technology
✓ cyber and R&D are top priorities for the US government
• federal budget authority for R&D continued to
increase in FY2016 (+7.5%) with a further increase
proposed for FY2017 (+3.3%)
• in 2015 the US DoD opened the Defense Innovation
Unit Experimental (DIUx) in the Silicon Valley to
support the innovation of disruptive technologies with
potential military value
Global Defense & Security Certificate 5
Science Fiction Is Becoming Reality
Stratobus – project for 2020: half
satellite and half drone (Thales)
Cyborg Insects –battlefield reconnaissance
Tracking bullets –unprecedented accuracy in combat
Space-Based Laser –intercepts missiles or destroys
satellites
Invisible vehicles – becoming invisible to hostile
thermal imaging systems (technology called ADAPTIV
made by BAE Systems)
The high tech camouflage system uses modules (a) covering the vehicles
that can be cooled or heated up very quickly as well as controlled individually,
allowing different patterns to be created (b)
a/
b/
Global Defense & Security Certificate 6
New “Iron Man” Military Exoskeletons: Lighter And More Efficient
Future Helmet – high precision visors,
sensors
Motorized limbs – help carry
the added weight from high tech
components while running or
climbing
Power –
Batteries, cooling systemPhysiological system – monitors
body temperature, heart rate,
body position and hydration levelsLiquid body armor – light and
flexible. When a bullet hits, the fluid
solidifies and absorbs the impact
over a wider area
Military’s vision of a future exoskeleton
The Best Way To Protect Peace Is To Increase Military Spending
➢ After years of cuts (2011-2015), global defense budgets were on the rise for the first time in
2016
➢ An Unstable and Volatile Geopolitical Situation
✓ terrorism, austerity, conflicts…
➢ Donald Trump’s FY18 proposed budget points to a massive acceleration in defense spending:
✓ supplemental budget requests (like the $25.2bn one for FY17) will feed the momentum
Global Defense & Security Certificate 7
USA Department of Defense Budget (US$ bn)
495.5 496.3 497.3
521.3 523.9
556.7
+25.2
+17.8
440
460
480
500
520
540
560
580
600
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
DoD FY 2018 President's Budget; notes: excludes Overseas Contuining operations (war funding)
DoD FY 2017 President's Budget; notes: excludes Overseas Contuining operations (war funding) Source: US Department of Defense
549.1
574.5
Supplemental
budget
requests
The Length Of Defense Cycles Offers Strong Visibility For Investors
Global Defense & Security Certificate 8
➢ It’s worth noting that since WWII, each defense cycle has lasted between 5 and 10 years on
average, suggesting that the current upcycle could run until 2020 at least
A Topline of US Defense Budget History Spending on National Defense,
in billions of 2005 Dollars
Catalysts All Around The World: the Global Geopolitical Instability
9Global Defense & Security Certificate
Asia
-Modernization budget strength
-Trump election
USA
- NATO: Pressure by US on EUR defense spending - European defense fund proposal
Europe UK
- Brexit:
US influence in Europe?
Defense budget reallocation in
EU army?
- Trident nuclear submarines
program
- Political instability
- Terrorist groups
-Growth of Chinese influence in the Chinese Sea
-End of Asian Pivot?
Africa & Middle East
Source: AtonRâ Partners; Heidelberg Institute - Conflicts in 2016
A Huge $1.68bn Defense Spending Bill Globally, With Significant Upside In NATO (I)
Global Defense & Security Certificate 10
Source: AtonRâ Partners & www.sipri.org
➢ Top 5 spenders account for 61% of global military spending in 2016
In billion USD
36%
13%4.1%3.8%
3.3%3.3%
2.9%
2.7%2.4%
2.2%
26% USAChinaRussiaSaudi ArabiaIndiaFranceUnited KingdomJapanGermanySouth KoreaOthers
($ billion)
55.9
63.7
69.2
215
611
0 100 200 300 400 500 600 700
India
Saudi Arabia
Russia
China
USA
Top 5
spending:
$1,015bn
3.6% GDP
1.9% GDP
5.3% GDP
10% GDP
2.5% GDP
➢ Geographical breakdown of global defense spending in 2016
Global Defense & Security Certificate 11
A Huge $1.68bn Defense Spending Bill Globally, With Significant Upside In NATO (II)
➢ NATO Meeting The 2% Of GDP Target Points To $100bn Spending Upside
Source: AtonRâ Partners & www.nato.int
3.61%
2.38%
2.18% 2.15%
1.79%
1.55%1.47% 1.41%
1.28%1.20% 1.19% 1.16% 1.15% 1.12%
1.04%0.97% 0.93%
0.81%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
NATO’s
2% of
GDP
target
Defense Expenditure in 2016 as a % of GDP in NATO
Exposure To The Main Defense Segments
➢ Land
✓ Combat vehicles
✓ Tactical vehicles
➢ Air
✓ Fighters
✓ Military plans
✓ Helicopters
Global Defense & Security Certificate 12
➢ Sea
✓ Carriers
✓ Submarines
✓ Combat boats
➢ Defense
✓ Drones
✓ Missiles
✓ Satellite
✓ Cybersecurity
Global Defense & Security Certificate
➢ Even if the US defense budget and most
budgets across the world are well balanced
➢ We believe that the focus will be on:
✓ next-generation aircrafts,
submarines and ships
13
Focusing On Military Aircrafts, Naval Ships And Drones
30%
28%
24%
18%
2015 US Military budget, by department
Navy
Air Force
Army
Defense Wide
Source: Comptroller.defense.gov; AmericanProgress.org
➢ Drones also a top priority given:
✓ surveillance needs
✓ precision weapon functions
1.65 2.07 1.82 2.253.42 3.75 3.78 3.80 3.71 3.71
1.71
2.172.14
2.44
2.682.66
3.48 3.75 3.83 3.91
0
2
4
6
8
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
bu
dge
t in
bill
ion
USD
Estimated global and US procurement budget for UAVs (Drones)
United States Rest of the world
Source: AtonRa Partners, Sipri, Statista
Growth Accelerating Thanks To Massive Projects
Global Defense & Security Certificate 14
➢ Modernization budget in US
➢ Massive defense projects
✓ Aircrafts:
• Expected orders for Rafale fighter from India and UAE
• F-35
✓ Ships/submarines:
• Boost from instability in Asia (disputes over islands in
the South China Sea) and in North Africa (Mediterranean
Sea)
• US Navy is expected to replace its aging fleet of submarines
• Defense officials seeking to increase the US Navy fleet
by 83 ships (from 272 to 355 ships)
• Trident nuclear submarines program in the UK
✓ The main source of revenue for contractors
✓ Most recent DoD budget increases have been directed
towards modernization
✓ Expected to rise faster than the overall defense budget
in FY18E-FY21E
Global Defense & Security Certificate 15
➢ During the Cold War, the US and the Soviet Union used space exploration to:
✓ demonstrate ballistic missile technology
✓ and develop other military applications
Space Exploration Has Close Links With Defense
Global Defense & Security Certificate 16
Satellites have four major roles
➢ Today, space exploration is a source of innovations in the fields of healthcare, materials, robotics
and transportation systems
➢ But also remains important in defense-related fields such as aeronautics and IT & Telecoms
(satellites)
➢ Satellites appear as a major actor in the global security value chain, creating the fundamentals
for telecommunication technologies
Satellites Make The Link Between Space And Earth
Global Defense & Security Certificate 17
Cyber Security: A Major Action Field For Both States And Corporations
➢ States and international organizations:
USA: Homeland Security Department;
US Cyber Command
Creation of “information operations forces”
within the Russian army, 2017
Publication of China’s first national
cybersecurity strategy in Dec. 2016
Europe: NIS Directive dated July 2016
NATO: “Cooperative Cyber Defence Centre
of Excellence”, NATO Industry Cyber Partnership
➢ Corporations:
➢ The cyber security market size is expected to grow from USD 122 bn in 2016 to USD 202 bn by
2021, a 10.6% CAGR (Source: Research and Markets)
Global Defense & Security Certificate 18
Biometrics To Identify and Target
➢ Biometrics uses facial image, fingerprint, iris, DNA or voice pattern to identify individuals
✓ the US Department of Defense is working with multi-modal biometrics (ABIS- Automated
Biometric Identification System), a combination of above mentioned technologies
➢ Biometrics has many applications in the civil world as well
✓ accessing corporate buildings
✓ accessing devices
✓ unlocking car doors
✓ opening one’s house door
Global Defense & Security Certificate 19
➢ Semiconductors, electronics and
robotics
Other Innovations Are Also In Play
➢ Security devices & services
✓ Inspection device makers
✓ Security services providers
(Securitas, G4S…)
✓ Graphics cards providing computing power
✓ Robotics
✓ 3D printing
Global Defense & Security Certificate 20
Ethical Standards
➢ AtonRâ Defense & Security certificate does not invest into companies which manufacture
anti-personnel mines and cluster bombs
➢ We also avoid companies manufacturing chemical weapons
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unit) of AtonRâ Partners and sent to you by the company sales representatives.
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Although AtonRâ Partners SA believes that the information provided in this document is based onreliable sources, it cannot assume responsibility for the quality, correctness, timeliness or completenessof the information contained in this report.
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While all reasonable effort has been made to ensure that the information contained is not untrue ormisleading at the time of publication, no representation is made as to its accuracy or completeness and itshould not be relied upon as such.
Past performance is not indicative or a guarantee of future results. Investment losses may occur, andinvestors could lose some or all of their investment.
Any indices cited herein are provided only as examples of general market performance and no index isdirectly comparable to the past or future performance of the Certificate.
It should not be assumed that the Certificate will invest in any specific securities that comprise any index,nor should it be understood to mean that there is a correlation between the Certificate’s returns and anyindex returns.
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21Disclaimer
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