What makes Cybersecurity an attractive market?

Over the past two decades, technology has changed the way businesses operate, interact, and sell their service or product to consumers. Companies like Facebook, Adidas, and Ticketmaster have suffered significant brand damage after data breaches; in addition, governments around the globe continue to develop legislative measures and penalise companies for non-compliance. Cybersecurity is not only a necessity but is fast becoming an attractive marketing tool for trusted companies.

Furthermore, technology is rapidly evolving for everyday people, with many holding multiple Smart devices that store and protect their self-identify (pictures, passwords, identity documents, banking, investments, etc.). A whirlwind of scams and fraudulent activity is becoming increasingly prevalent, and these breaches continue to expose consumers’ personally identifiable information (PII) at an alarming rate. In 2020, more than 292 million Americans had their identities compromised, according to the Identity Theft Resource Center® (ITRC), with Cybercriminals focusing their time on lucrative cyberattacks, such as ransomware, credential stuffing, malware and Virtual Private Network (VPN) exploitation. As the everyday person becomes more aware of their vulnerability and the severe implications of complacency, Fintor believes that Cybersecurity will become a necessity for all, much like a mobile phone plan.

Connection is Life

Our belief that Cybersecurity is likely to become a necessity for all consumers is based on the rapid growth in connected devices, commonly referred to as the “Internet of Things” (IoT). IoT devices are now connecting, powering, sharing, and storing end users’ data, information, and secrets to an alarming extent, with many consumers unaware of the shared data. Fintor’s view is that with time, the rapid increase in IoT and smart devices in business and lifestyles will only fuel the need for a multilayered Cybersecurity defence strategy as people become more aware and seek to protect their vulnerabilities. Thus, Cybersecurity will only attract more and more investment – making it an attractive market to any investor.

Evidence of this view is the medium-term forecast for the IoT market size, fueled by the exponential growth in connected devices. According to Juniper Research’s latest report, the number of IoT devices in 2021 reached an eye-opening 46 billion, a 200% increase in connected devices since 2016. Perhaps more intriguing is that the growth is not slowing; it is accelerating. Martech Adviser estimates that by 2030 every customer will own 15 devices (currently 10 in the USA), with the IoT market forecast to reach 125 billion devices. This growth creates an attractive opportunity for the cybersecurity industry as humans and industry become ever more reliant on IoT. When investing, the numbers need to be clear and compelling, and Market Data Forecast released a publication in January 2022, which estimated the 2020 IoT market size at $330.6 billion (USD).

Furthermore, they estimate that by 2025 the IoT market is expected to reach $875 billion, which equates to a compounding growth rate of 26.90%. Furthermore, Fortune Business insights estimate the IoT market size at $384.70 billion in 2021 and forecast that by 2029 the market will have grown to $2.465 trillion (USD). Fintor believes that the compounding rate of return has a long way to go before slowing, and the above information demonstrates this view.

It is essential to understand that the IoT market is not directly linked to Cybersecurity as an investment. However, we believe that the IoT market illustrates the exponential growth in connectivity the globe will experience over the coming decade. We believe that this connectedness will make consumers, businesses, and industries increasingly prone to cyber security attacks. Inevitably, this will drive the need for significant investment into Cybersecurity for consumers, businesses, industry, and government alike. The continued need for investment is why Fintor finds the Cybersecurity Index to be an attractive investment and a worthwhile consideration for any investor.

What is Cybersecurity?

Cybersecurity involves protecting and securing systems, networks, mobile devices, programs, and data from unauthorised access or malicious attacks on the web. Attackers will go to great lengths to alter, steal, or destroy important data, thus compromising government, industry and business operations or personal data. At its worst, attackers will extort money from those affected as ransom.

A good cybersecurity strategy includes multiple layers of protection technologies working across connected devices (IoT), mainly networks, systems, computers, and servers. Cybersecurity as an investment categorises companies that deliver technology, product, service, and end-to-end solutions that help end-users protect themselves from Cyberattacks.

How do companies invest in Cybersecurity?

All businesses are different and require unique cybersecurity protocols depending on the various systems used. As a result, there are vast amounts of companies operating in this space with different strengths, weaknesses and niches, which creates significant opportunities for investment.

Most organisations will employ multiple cybersecurity professionals with the necessary expertise, knowledge, and appropriate solution(s) in critical aspects of their cyber defence. A company’s motive to invest is to create a strategic and effective practical plan to secure customers’ valuable data, to avoid brand damage and potential government penalties.

A New Era for tech & attacks

Fintor believes there is another evolution to the Cyberthreat with many household items now becoming connected (fridges, TVs, speakers, cars, toys etc.), and we believe that this connectivity, in time, will be prone to attack. This connectivity has the potential to expose personal lives in real-time (live audio, visual & location). As such, we envisage a significant shift in the demand for consumer-based multilayered Cybersecurity systems and protection solutions over the coming decade. Existing and future developers/ providers of Cybersecurity technology serve as the investment opportunity and collectively make up the Cybersecurity Index.

Who are the big players in Cybersecurity

America dominates the cybersecurity industry with many index managers holding over 85% in American entities, usually followed by Israel with a 3.5%+ allocation. From a sector allocation, most index managers hold over 60%+ in software-related entities, followed by Communications Equipment (11%+), Research & Consulting Services (8.0%+), Internet Services & Infrastructure (8.00%+), Application Software (3.00%+), IT Consulting & Other Services (2.5%+) and Aerospace & Defence (1.5%+). Individual entities are less known to many people, but a few names may be familiar, with Crowdstrike, Palo Alto Networks and Cisco as an example.

How to Invest in Cybersecurity

Most entities that specialise in Cybersecurity are international, which can create significant complexities when investing from Australia; complexities include but are not limited to international taxes & currency exchange. For people seeking to invest in companies individually, The Motley Fool provides a great breakdown of several stocks worth consideration.

Fintor believes in the Cybersecurity sector in its entirety, and we believe that due to the existing and forecasted rapid growth of the industry, the individual players will significantly change over time. This expected change, coupled with the complexities involved in reviewing thousands of portfolios with individual holdings promptly, is the reason for our preferred broad-based approach to this segment. As such, Fintor typically utilises specialised Exchange Traded Funds (ETF), which track the Nasdaq Consumer Technology Association Cybersecurity Index to provide exposure to people seeking to invest in the Cybersecurity industry.

Fintor’s Top Pick for Cybersecurity

Fintor employs BetaShares, a very well-respected Australian Exchange Traded Fund manager. BetaShares provide investors with a cost-effective and straightforward way to gain exposure to the world’s leading cybersecurity companies in a single ASX trade via HACK. HACK aims to track the performance of the Nasdaq Consumer Technology Association Cybersecurity Index (before fees and expenses). In doing so, HACK provides investors exposure to the leading companies in the global cybersecurity sector. HACK was established in August 2016 and has an excellent track record of achieving its targeted Index return. Since its inception, HACK has achieved 20.71% per annum for investors as of 31st March 2022.

For the latest performance report on HACK, click here
For HACK portfolio holdings, click here
For HACK product disclosure statement, Click here
To go to HACK Website, click here

Adviser is a Corporate Authorised Representative (No.1288780) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969 Australian Financial Services Licence No. 223135. Information contained in this document is of a general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors, employees or authorised representatives gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document.
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