Security & Space: There is No Fighting The Surge

What Is It All About?

The Security & Space strategy’s main goal is to provide exposure to segments, ensuring the safety of people and infrastructure, be it physical or virtual (e.g., IT networks). The space segment is also addressed, as security increasingly relies on space-based applications. The investable universe is structured around security (including physical security and cybersecurity), space (encompassing space-based services and their associated infrastructure), and defense. The latter is non-investable for the most part due to most stocks being on exclusion lists, but is nevertheless monitored to account for its structuring dynamics.

A Look In The Rear-View Mirror

For the third consecutive year, the Security & Space strategy is on track to deliver a strong performance, surpassing 30% year-to-date and bringing the 3-year cumulative net return above 170%.

Once again, the space segment contributed the most - around two-thirds of the total return. Our stock selection focusing on commercial players entering the rollout phase was strongly rewarded. Three of our holdings even exceeded a 100% return: AST SpaceMobile, Planet Labs, and Rocket Lab. We took some profits during the summer as valuations became stretched. This helped offset part of the market correction in November.

Cybersecurity also delivered solid support. The combination of structural demand and strong visibility continued to attract investors even after valuations reached historical highs in the late first half. The sector proved resilient despite the Trump administration reversing the Biden-era Executive Order that had kick-started the current investment cycle. These positive drivers remain in place, and valuations have now moderated, offering a healthier foundation for future returns.

Physical Security’s performance lagged due to its defensive profile in a market increasingly comfortable with risk. But as global threats intensify and bad actors scale their power through technology, the sector has become the silent engine that keeps everything else running. Its structural growth, visibility, and pivot toward richer margins offer a mix of resilience and upside that few sectors can match. When volatility resurfaces this resilience will stand out, explaining why the sector remains central to our allocation.

What We Are Watching

New Space Services Are on the Launch Pad

The commercial phase is approaching quickly for several space companies. The launch of new services in 2026 is expected to propel the segment into a period of strong growth, providing a clear path to profitability.

One of the most important developments next year will come from AST SpaceMobile. The company plans to begin its commercial service, offering high-speed internet directly to standard smartphones, first in the U.S. then internationally. Starlink marked a turning point; AST will mark another one by removing the need for dedicated equipment. As with any new technology, some challenges are inevitable, but existing partnerships with major telecom operators significantly mitigate the downside risk.

Another key milestone will be progress in the launch segment. Blue Origin successfully launched and recovered its new heavy rocket, following the path opened by SpaceX. Rocket Lab is expected to follow suit soon, with the first launch of its reusable Neutron rocket planned for the first half of 2026. Positioned in the mid-size segment, Neutron could strengthen competition where it is most needed.

These advances will reshape the entire industry. Reusability and renewed competitive pressure should drive launch costs lower, benefiting the whole ecosystem and helping transform the space economy from aspiration to reality. An additional tailwind has emerged on the political front. The candidacy of Jared Isaacman to lead NASA, initially dismissed, has resurfaced and is expected to gain traction this time. With a clear ambition to reverse some of the setbacks NASA has faced under the current administration, its strong ties to the commercial sector are a major positive for the ecosystem.

Cybersecurity Still Racing Ahead

Cybersecurity continues to deliver steady, structural growth year after year. The sector offers a rare combination: essential infrastructure that must constantly adapt to new threats, and high visibility, as cyber risk has become a board-level priority. Cost-cutting is unlikely in an environment where a major breach can end careers. Even the Trump administration’s decision to repeal the Biden-era Cybersecurity Executive Order, which helped ignite the current investment cycle, has not slowed momentum, and spending has remained robust.

The primary challenge for companies now is execution, particularly as the industry transitions toward platform-based models. High-quality specialists have become attractive acquisition targets when their technologies fill strategic gaps. In 2025, for example, Palo Alto Networks acquired Cyberark, both of which were then significant positions in our portfolio, as we viewed them as leaders in their respective domains. The rise of AI is set to reinforce this trend. As AI agents proliferate, identity management becomes even more important, and securing and routing data properly, especially for model training, becomes critical.

For investors, valuation remains the only real sticking point. At the end of November, the sector traded at 29.9x earnings, compared with a 10-year average of 25.9x. However, the 5-year average rises to 27.5x, coinciding with the start of the current cycle. These higher multiples have not prevented strong performance; they reflect the sector’s strategic importance. We see no reason for this to change in the near term. In short, investors have been rewarded for paying up for quality.

Security Remains Paramount, But Is Not Insulated From Politics

As anticipated in our previous outlook, political developments have played a major role this year. One significant risk was avoided when the so-called “One Big Beautiful Bill” was passed. Still, the government shutdown had a meaningful impact on companies dependent on federal spending, as reflected in the volatile 3Q25 earnings season. Given the current tensions in U.S. politics, this pattern is unlikely to fade soon.

The next area of concern may involve defense-related companies. The administration has recently released an updated National Security Strategy, signaling a substantial shift away from the post-World War II geopolitical framework. If U.S. security guarantees are scaled back, international buyers may no longer feel compelled to purchase American systems, opening opportunities for emerging competitors.

At the same time, recent challenges to democratic and constitutional norms have generated intense public and institutional backlash, including from parts of the traditionally conservative military. This may result in further policy adjustments, depending heavily on the outcome of the upcoming midterm elections. In this context, diversification, across both segments and geographies, remains essential.

Where We Stand, And What’s Ahead

We enter the new year with our target allocation unchanged: 40% in Cybersecurity for its structural high growth and strong earnings visibility; 20% in Physical Security for its stable and defensive profile; and 40% in Space for its significant long-term growth potential, albeit with slightly higher risk. This allocation is not fixed, but adaptable as market conditions evolve. That said, we view it as broadly all-weather, striking a balance between resilience and opportunity.

More specifically, our exposure focuses on:

• Innovative space players with differentiated technologies and no direct links to the defense sector. These include both infrastructure providers like Rocket Lab and application-focused companies like AST SpaceMobile.
• Cybersecurity leaders shifting toward platform models, able to expand within their core markets while entering adjacent ones. We particularly favor names such as Palo Alto Networks and CrowdStrike.
• Established security companies successfully transforming themselves into modern technology businesses (Axon), or those positioned in sectors where sustained demand leaves little alternative to continued growth (OSI Systems).

As outlined in our upcoming 2026 Macro Outlook, the political configuration creates an unusually supportive environment for risk assets. America's 250th anniversary on July 4th, the Fed chair transition in May, and the November midterm elections align incentives toward policy support. The "political put" we describe in detail in the macro note applies with particular force to sectors where spending cuts carry unacceptable political risk.

Our approach is to capture the potential of segments supported by strong, long-term structural drivers. We avoid exposure to short-lived fads that tend to appear in areas receiving heavy public attention but whose economic logic remains unclear. Examples include space-based datacenters (economically impractical and challenged by basic thermal constraints); AI-generated malware (AI is not yet capable of autonomously creating advanced threats); and all-drone warfare concepts from new U.S. start-ups (despite changes in modern warfare, traditional procurement channels remain firmly in place).

The setup for 2026 is highly compelling. Commercial space is entering full deployment, Cybersecurity remains in a powerful super-cycle, and Physical Security provides stability. Crucially, this strategy avoids discretionary segments. It is anchored in essential needs - personal safety, economic infrastructure, and national security - themes that persist regardless of political winds. After three years of strong results, including +170% cumulative returns, mean reversion may seem inevitable. We beg to disagree. The strategy is positioned in markets defined by structural growth, non-discretionary spending, and clear catalysts ahead. Taken together, they create a resilient foundation for sustained growth.