😮‍💨 Defense is in, luxury's out

What’s going on here?

Rheinmetall nabbed a spot in the Euro Stoxx 50, cementing the German ammunition maker’s place among Europe’s 50 biggest publicly listed firms.

What does this mean?

Rheinmetall’s stock has nearly tripled this year, notching the firm a market value of €87 billion (nearly $100 billion). Remarkably, that looks relatively paltry next to the 1,800% that the shares have surged since Russia’s 2022 invasion of Ukraine. Rheinmetall will be the only purely defense company in the Stoxx 50 index, acting as a representative for the sector’s dramatic rally. Defense has been one of Europe’s best performers this year, spurred on by government pledges to spend more on European frontlines. In fact, a Goldman Sachs index of European defense firms hit a record high last month.

Why should I care?

Zooming in: This club has benefits.

Rheinmetall will feature in the Stoxx 50 from June 23rd. And because funds tracking the index will buy shares to match its new composition, you’ll likely see the stock perk up a little more before then. Rheinmetall’s further-out fortunes are harder to predict, though. The stock’s already expensive, trading for 99 times the firm’s earnings per share versus the index’s average of 17. That’s largely due to those bumper government spending plans. So it could only take a few broken promises for investors to lose interest – and those aren’t exactly rare in politics.

The bigger picture: Luxury is out of fashion.

Gucci-owner Kering will be kicked out of the index to make room for Rheinmetall. The luxury firm’s stock has fallen 28% this year, with investors worried that tariffs will make its already expensive wares harder to shift. An economic slowdown or stock selloff could force even the world’s wealthiest to rethink their spending habits – no matter how many flashy logos or types of crocodile skin are on offer.

What’s going on here?

Thoma Bravo’s latest fundraiser pulled in $34.4 billion, showing that private equity (PE) firms can still grab attention if they put some muscle into it.

What does this mean?

PE firms have a certain method of operating: they buy buckets of businesses, whip them into better shape, and (theoretically) sell them on for a profit. $24 billion of the cash that Thoma Bravo raised was directly for its main buyout fund, with the rest spread across two smaller ones. That’s the industry’s biggest closing number for a single fund this year and last, beating EQT’s $23.7 billion and Blackstone’s $21 billion. At the same time, a lot of PE firms have struggled to bag any big bucks lately: Bain, for one, reported that all its funds closed under $5 billion last quarter.

Why should I care?

Zooming in: Dry powder’s dry spell.

Higher interest rates have stomped on company valuations, forcing PE firms to wait for a better, more profitable time to sell their investments. The White House throwing out more curveballs than Sandy Koufax hasn’t helped, with stock market listings and big-ticket sales now less predictable than usual. And because PE firms have largely been sitting on their lots instead of shifting them, some don’t have a lot of cash to fund new investments. So, eager to raise more dough, many firms want to make it easier for retail investors to join institutional investors and the ultra-wealthy as PE backers. The US Securities and Exchange Commission, for its part, is working on reducing the restrictions around individual investors in the private sector.

For you personally: Retail investors may well be tempted…

PE investments have been more lucrative than stocks over the last two decades, wrangling a 13.4% return versus stocks’ 8.9%. Mind you, that premium return is balanced by greater risk and higher fees. Plus, you can’t sell funds like you can stocks: you’re pretty much locked in until the firm sells or lists its investments.