The Market Thinker: cyber security themes you need in your portfolios

The World Economic Forum (WEF), sometimes known as “The Men of Davos”, has drawn much criticism from conspiracy theorists over the past year.

This is mainly due to the fact that they were involved in a training rehearsal for a global pandemic just before the Covid outbreak, but also the speed with which they put forward their proposals for The Great Reset.

However, one doesn’t have to be a conspiracy theorist or worry about The Great Reset to find that much of what the WEF is talking about is undoubtedly actually happening.

In particular, their past commitment to the “fourth industrial revolution”, the digitization of manufacturing, with a combination of AI, automation and robotics, digital health, cloud computing, 3D printing, quantum computing and the Internet of Things.

That framework has been a major driver of many of the digital subtopics that have emerged for investors in recent years. It is also at the heart of China’s Made in China 2025 (now 2030) initiative, which sparked much of the New Cold War antagonism between the US and China.

On the flip side, conspiracy thinking could make one worry about the next training rehearsal the seemingly Covid-anticipating WEF is planning for next month – a major cyber security attack.

With the stronger digital connectivity, the risk of cybercrime increases and no doubt digital security has moved up on the “things” agenda with recent hacking incidents like the ransomware attack on the Colonial Pipeline and the Solar Winds attack late last year to worry about’.

Cyber ​​security as a guideline

So we should note that the extensive work done by think tanks like the WEF and others on cybersecurity is undoubtedly driving government policy today.

For example, last year Mike Pompeo announced the Clean Network, essentially a US version of China’s Great Firewall, and recently President Joe Biden issued a cybersecurity executive order calling on the US federal government to “do the fullest of his Authorities and resources to protect and secure its computer systems, regardless of whether they are cloud-based, local or hybrid ”.

In fact, what has already been a strong corporate tailwind behind cybersecurity as an investment theme has just received strong political impetus.

In the past year, a number of the fourth industrial revolution trends accelerated. In particular, the dramatic increase in home working and the need to move many business-critical computer systems from businesses to cloud-based networks has resulted in a huge surge in IT spending, with related cybersecurity spending to $ 120 billion in 2021 and ultimately, according to WEF and others, reach $ 1 trillion by 2035.

Obviously, this presents a significant opportunity for investors, but as with most topics, cybersecurity has a mix of subtopics, some game-only, and some companies mingling in between.

As with most topics, there are a number of traditional companies adapting their business models and a number of new entrants. In the terminology, these are referred to as digital nomads and digital natives.

How can it be accessed?

Some of the biggest pure plays are stocks like Crowdstrike, which is cloud-based and offers security for devices connected to a network and thus a true remote working beneficiary, or Zscaler, which offers secure web gateways and with a Device security cooperates providers.

Fortinet is a large legacy company and firewall vendor, while another legacy vendor, Palo Alto, has expanded into the space through a conglomerate approach and has bought smaller digital or cloud natives.

They all have different views on cybersecurity, but one that sums up the new world is Okta, a system that requires constant user identification and is essentially described as a world of Zero Trust.

However, in essence, digital security is a subset of software, and software as a service in particular, and there are a number of other companies like Splunk that could potentially be seen as beneficiaries of cybersecurity.

For example, one could simply buy the Software and Services (SaaS) sector in general through the IGV US ETF. However, if you want a cleaner game of cybersecurity, but with less idiosyncratic risk, there are a number of ETFs available.

HACK US is reasonably diversified with 60 stocks, but tends to be in the small and mid-cap range, while BUG US, the newest, is more concentrated with only around 27 stocks.

The largest in terms of market capitalization is CIBR, which is between the two with around 40 stocks, while LOCK LN is the most diversified, which tracks the Cyber ​​Index with around 103 stocks.

The bottom line is that all other topics related to the fourth industrial revolution of automation, IoT, blockchain, fintech, digital factories and so on cannot work without digital security, which is why they should be part of every thematic growth strategy.

Mark Tinker is a former top rated sell-side strategist and successful global thematic equity fund manager for Axa Investment Managers in both the UK and Hong Kong.

He recently founded Market Thinking as an investment advisory boutique focusing on investment solutions and tactical asset allocation. Tag blogs regularly on market-thinking.com.

source https://collegeeducationnewsllc.com/the-market-thinker-cyber-security-themes-you-need-in-your-portfolios/