Several high-profile hostile hacks of major corporations and governments in recent years have put cybersecurity firmly on the agenda. And the ongoing rise of “the internet of things” (the ability of the most mundane devices to be networked and “talk” to one another) and the popularity of storing computer data remotely in “the cloud” means it will only become more important.
This could be extremely lucrative for some firms. A recent report by Bank of America Merrill Lynch estimated that the cybersecurity market is already worth $75bn and could grow to $170bn by 2020. The downside is that there have been few ways for investors in Europe to get broad-based exposure to the industry. However, this is about to change with the recent launch of the ETFS ISE Cyber Security GO UCITS ETF (LSE: ISPY).
This exchange-traded fund offers access to a range of internet security-related companies, based on ISE’s own index (it’s related to ISE’s popular US cybersecurity ETF, which has the ticker HACK). There are 33 companies in the index, which is geared toward mid-cap companies, thus avoiding large conglomerates that make only a small part of their revenue from cybersecurity.
While software firms account for the majority of the holdings, consulting firms are also represented. And in contrast to other, more US-focused funds, the index has a fair spread of stocks from around the world. The three biggest holdings are in Japan’s FFRI (Tokyo: 3692), recently listed UK firm Sophos Group (LSE: SOPH) and another Japanese security group, Trend Micro (Tokyo: 4704).
One weakness of the ETF is that the fees are relatively high, with a total expense ratio of 0.75%. However, this reflects both the degree of specialisation involved and the lack of competition. Overall, if you want to buy into the cybersecurity theme, it’s a convenient way to do it.