A year ago, I was writing here about investing in defence stocks when war breaks out. And I said that, when it comes to conflict, there are always two investor feelings.
Ben Kumar – Illustration by Dan Murrell
The first is fear for portfolios: “How much money have I lost?”
Then, hot on the heels, slightly hesitantly and slightly awkwardly: “Sooooo… is there any money to be made?”
For most of the last 12 months, I’d have bet good money that this piece, in early 2026, would be about artificial intelligence.
But here we are again. Planes in the air, missiles being launched, explosions being televised. And it’s the same two questions.
The answer to the first remains the same. Don’t panic.
The second is worth thinking about in light of the Iran–Israel–US conflict now dominating headlines.
The lesson from history is that the side with the deepest industrial base tends to win a shooting war
Most of the recent investing focus has, understandably, been on oil. And if you’re an oil trader, the daily swings of more than 10% have certainly given you the opportunity to make — or lose — a lot of money. For longer-term investors though, I’m not sure direct commodity markets are a particularly friendly place.
Instead, let’s talk about defence companies. The darlings of the market in 2024 and 2025. I suggested last year that the momentum might not be spent. Does the case still hold?
Last year, I argued that defence stocks don’t rise because there’s “more fighting”, but because governments make long-term investments. The lesson from history is that the side with the deepest industrial base tends to win a shooting war.
In the 15th and 16th centuries, Venice dominated the Mediterranean not because it had the best ships or sailors, but because it built the best system.
The winners are not the loudest weapons, but the companies embedded deep in supply chains
The Venetian Arsenal was the largest industrial complex in Europe prior to the Industrial Revolution. At its peak, it could assemble and equip a fully functioning warship in a single day, while rival states took months. The Venetian government spent around 10% of GDP every year keeping it going.
The power wasn’t the ship. It was the industrial base behind it.
Modern defence spending works the same way. The winners are not the loudest weapons, but the companies embedded deep in supply chains — munitions, sensors, maintenance, logistics. The unglamorous plumbing of security.
And yet, for decades, most Western countries let defence spending drift down the priority list. Old equipment. No replacements. Fewer soldiers. The industrial machine rusted.
That’s changing now. Defence companies are growing not because there’s more conflict, but because conflict has reignited investment in the supply chain.
Ben Kumar: War. What is it good for? Absolute … returns?
Humans are very bad at separating what feels urgent from what actually compounds. War grabs attention. Procurement frameworks do not. But it’s the frameworks that drive investment returns.
Defence stock returns don’t come from drama. They come from boredom. From legislation, budget approvals and strategic defence reviews. From factories quietly being funded to run at capacity for 20 years.
Over the last year, that’s materialised — faster than I expected. European countries have moved from committees to commitments. NATO’s old 2% of GDP target is being treated as a floor, not a ceiling. Budgets are being signed off, helped along by the uncomfortable reality that existing defence systems are being used — and used up.
So, in 2026, we can see the evidence. Western governments are relearning an old lesson: peace is expensive. But worth paying for.
Returns so far suggest a lot of this is already in the price. Defence stocks have had a very strong run, with an index of them up around 65% over the past year.
Don’t panic. Don’t overreact to headlines. Don’t assume every geopolitical scare is a trading signal
That doesn’t mean the story is over, but it does mean expectations are higher and mistakes will be punished more quickly. This is no longer a forgotten corner of the market. Being ‘early’ is no longer an option.
And the original warning still stands. Don’t panic. Don’t overreact to headlines. Don’t assume every geopolitical scare is a trading signal — either to buy or to sell.
War is a tiny word with a huge human cost. From an investment perspective, what matters isn’t the conflict itself, but the systems built in response to it.
A year ago, I said defence returns depend on long-term commitment, not short-term fear. Today, it feels like the world has structurally committed.
Ben Kumar is head of equity strategy at 7IM