UK fund managers have come under fire after it emerged many had cut back their holdings in major British defence stocks since Russia’s invasion of Ukr
UK fund managers have come under fire after it emerged many had cut back their holdings in major British defence stocks since Russia’s invasion of Ukraine last year.
Fund managers based in the UK have slashed their holdings in companies including BAE Systems and Qinetiq by an average of 9 per cent since the start of 2022, according to data from the London Stock Exchange Group.
At the same time, EU investors increased their ownership of British defence groups by 9 per cent while raising exposure to European companies by 4 per cent.
The move by British fund managers underlines major concerns in Westminster that the sector lacks support in the City of London.
The decisions have also puzzled military observers, particularly as many firms have seen demand boom after the invasion of Ukraine in February last year.
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‘The experience of the last 18 months in Ukraine shows we must have a sound defence industrial base in order to build the ships and vehicles we need,’ said Lord Dannatt, a former Chief of the General Staff.
He added: ‘It is disappointing that Britain is de-investing in major companies like BAE Systems. We must ensure our defence industrial base is strong and that BAE remains part of our future.’
A breakdown of the figures shows the amount of shares held in BAE by UK fund managers had dropped from 34 per cent in July 2021 to just under 30 per cent at the end of last month.
And Qinetiq saw its percentage drop even more sharply, falling from just over 70 per cent in August 2021 to just 36 per cent, according to the data.
Others in the sector also had funds pull back their investments, with engineer Senior dropping from 48 per cent to 43 per cent.
The moves have also sparked concerns that environmental, social and governance (ESG) guidelines are blocking firms from investing in the sector.
ESG investing – also known as ‘socially responsible investing’, ‘impact investing’ and ‘sustainable investing’ – aims to optimise the effect of investing on the environment, society and corporate governance.
Investments must include consideration of human wellbeing and the environment.
As a result, some investors are taking their money out of tobacco firms or oil giants.
But others – including the Church of England and Legal & General – are also avoiding the defence sector on ‘ethical’ grounds.
City Minister Andrew Griffith said it was morally wrong for investors to shift funds out of these companies.
‘Whether it is deliberate or the unthinking application of “ESG” policies, UK investors defunding defence is the opposite of social responsibility when peace and democracy is under threat,’ he wrote on social media platform X, formerly known as Twitter.
The concerns were echoed by Kevin Craven, boss of defence industry trade body ADS Group, who said ‘overcautious or misapplied ESG considerations’ were ‘drastically impacting’ the ability of the defence sector to secure financing.
ADS also said it was aware of ‘strong anecdotal examples’ of lenders withdrawing banking services or refusing loans to businesses due to their involvement with the defence industry.