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Buy this ETF to profit from firms fighting the hackers
More people working from home as a result of the coronavirus pandemic has presented big opportunities for fraudsters and cyber criminals.
But unluckily for them there are a large number of cyber security companies who are working to fight off the aforementioned digital bad guys.
These businesses should be in line to profit by doing so and you can gain easy exposure to this theme through exchange-traded fund L&G Cyber Security UCITS ETF (ISPY).
There is clearly a need to tackle cyber crime, as EasyJet’s (EZJ) recent data breach showed with 9m customers having some of their details accessed by unauthorised parties.
The global cybersecurity market, providing services to businesses and individuals, is expected to grow at a compound annual growth rate of 12.6%, while some companies in the industry have the potential to grow at an even faster rate.
This has been reflected in the sector’s strong share price momentum. US companies Crowdstrike and Fastly have seen their share prices almost double in the year to date, for example.
L&G Cyber Security tracks an index which has both Crowdstrike and Fastly as two of its top five constituents.
This ETF is the most mature product in this space available to UK investors having been set up in September 2015, and has £1.13bn of investors’ money, meaning it has a tight bid/ask spread – always important when looking to buy or sell ETFs.
The ETF has delivered a 17.5% annualised three-year return and a return of 11.9% year-to-date. The ongoing charge of 0.75% is reasonable when compared with other specialist ETFs.
Even if we’re in for a prolonged bear market, cyber security could potentially be less volatile than the rest of the tech sector as in an economic or market downturn many companies will still require cyber protection.
According to a survey carried out by LearnBonds, 70% of organisations see the value of raising investments in cybersecurity solutions and around 55% of major organisations said they will bolster their investments in automation solutions.
Nikesh Arora, the boss of Palo Alto Networks (the fourth largest position in the L&G ETF), said his firm is well positioned to leverage the acceleration of cybersecurity trends – remote working, shift to the cloud, focus on automation, artificial intelligence and machine learning – as a result of the coronavirus pandemic.
The firm is already showing the potential of companies in the space, and beat Wall Street expectations with its third quarter earnings reported last week.
Analysts were looking for non-GAAP earnings of 94 cents per share with Palo Alto instead delivering $1.17 per share, while the firm sees fourth quarter earnings of $1.37 to $1.40 per share compared to the $1.31 expected by Wall Street.