President Donald Trump’s bed-ridden, 400-pound hackerand his friends have been relentless in making 2017 a banner year for digital disruption of the worst kind. In light of the cyber attack pandemic -- Equifax breach, WannaCry, Petya -- cybersecurity companies are a screaming buy for long-term investors. There’s no better time to invest than October as it is National Cyber Security Awareness Month.
Each new trend in technology – cloud computing, big data, internet of things – creates new weaknesses for hackers to exploit with malware, ransomware, leakware. The two exchange-traded funds to invest in the hottest tech sector are ETFMG Prime Cyber Security ETF with the symbol HACK, formerly called PureFunds ISE Cyber Security ETF; and First Trust NASDAQ Cybersecurity ETF, which trades under the ticker CIBR.
“The internet security market is an attractive area even during recessionary times because of the increasing online traffic,” Zacks Equity Research wrote in a report about Symantec Sept. 21.
Double-Digit Growth Rate
Markets and Markets forecast the cyber security market will grow from $138 billion in 2017 to $232 billion by 2022for a compounded annual growth rate (CAGR) of 11%.
“The major forces driving the cybersecurity market are strict data protection directives and cyber terrorism,” Markets and Markets said in a report. “The cybersecurity market is growing rapidly because of the growing security needs of internet-of-things (IoT) and bring-your-own-device (BYOD) trends, and increased deployment of web and cloud-based business applications.”
Gartner forecasts the number of Internet-connected devices will expand from 8.4 billion worldwide in 2017 to 20.4 billion by 2020. Total consumer and business spending on IoT devices globally is projected to vault from $1.7 trillion in 2017 to nearly $3 trillion in 2020.
The need to better detect and respond to security breaches has created a new class of security products such as deception, endpoint detection and response (EDR), software-defined segmentation, cloud access security brokers (CASBs), and user and entity behavior analytics (UEBA), according to Gartner, a global research and advisory firm.
“These new segments are creating net new spending, but are also taking spend away from existing segments such as data security, enterprise protection platform (EPP) network security and security information and event management (SIEM),” Gartner wrote in a report.
In May, President Trump signed an executive order in hopes of improving U.S. cybersecurity in the wake of huge data breaches at the Office of Personnel Management and the Internal Revenue Service. The order called for federal agencies to review their security systems and update antiquated systems.
A 2017 survey of security industry vendors and practitioners conducted by Thales, a data security firm, found that more than two in three respondents, 67.8%, said their organizations were breached at one point, a jump of nearly 7% over the prior year. More than one in four, 26%, were breached in the last year, up from 22% the previous year. A majority of respondents, 88%, feel vulnerable to data threats. Some 73% of respondents expect security spending hikes in the next 12 months, a sharp rise from 58% last year.
HACK Vs. CIBR
ETFMG Prime Cyber Security ETF, the first to market and larger of the two funds with $1.1 billion under management, rose 13% year to date, through Sept. 30, according to Morningstar. First Trust NASDAQ Cybersecurity ETF, with $314 million in assets, climbed 14% year to date. Their returns were on par with the stock market but they lagged the tech sector.
SPDR S&P 500 ETF returned 14% year to date. The biggest tech ETF, Technology Select Sector SPDR® Fund, vaulted 24% the first three-quarters of the year.
