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Aerospace-Defense Equipment stocks like AIR, ATRO and ISSC are poised to benefit from M&A momentum and solid air traffic trends.

Astronics delivered record Q4 revenue and post-pandemic high margins, with backlog also at a record level. Management expects a return to double-digit revenue growth in 2026, supported by strong commercial aircraft demand and improved pricing. Recent geopolitical events in the Middle East have driven near-term volatility, causing ATRO to underperform sector peers in March.

Astronics Corporation has delivered 150% returns over 12 months, vastly outperforming its A&D peers (by 2.6x) and the Russell 2000 by 7.5x. After growing at 7-8% levels p.a., the company is now on course to generate topline growth that is almost double its historical level, even as aircraft build rates pick up. ATRO's dominance in in-seat passenger power systems (90% market share) and strong aftermarket sales underpin its margin expansion and growth outlook.

Seven of the portfolio's 10 equity sectors made a positive impact on calendar year performance, led by Industrials, Financials, and Information Technology. Our top contributor was nLIGHT, whose shares have outperformed due to upward revisions to the outlook for its aerospace & defense customers. The Fund's top-detracting position was outdoor products and accessories manufacturer American Outdoor Brands, which was negatively impacted by retail customer conservatism, as well as higher-than-expected tariff-related costs.

Astronics Corporation ATRO has been witnessing margin improvement over the last three years, with net margin expanding 1010 basis points. Net margin expansion is being driven by a combination of cyclical recovery and structural improvements.

Eight of the portfolio's 11 equity sectors made a positive impact on calendar year performance, led by Industrials, Materials, and Financials. nLIGHT differentiates itself via vertical integration, domain knowledge, and manufacturing capabilities to deliver cutting edge solutions, increasingly to government and defense organizations. Shares of Sprott outperformed as gold prices broke out to record highs amid elevated geopolitical risk, central bank buying, and a weaker U.S. dollar.

ATRO rides aerospace demand, strong backlog and operational gains, positioning it to sustain long-term revenue growth momentum.