With cybercrime on the rise at a global level, and citizens more concerned than ever about identity theft, PureFunds has a unique new security-focused ETF that could see huge growth in coming years.
Earlier this year, a pest control business owner said to me:
“I won’t do any business in gated communities.”
Living in Florida, I knew he was making a big claim. Gated communities are everywhere you look!
So what was his rationale for cutting his opportunity set short?
He doesn’t want to hand his driver’s license over to the security guard at the gate.
He’s terrified of having his identity stolen.
It’s not just small business owners who are afraid of a cyber attack …
The world’s largest companies are spending big dollars to protect themselves.
And with good reason.
Here are some of the world’s biggest data breaches over the last couple years and the aftermath …
Home Depot (HD): 56 million customer accounts risked; Cost Home Depot $62 million and banks $90 million to replace 7.4 million credit cards.JPMorgan Chase (JPM): 76 million households and 7 million small businesses had records stolen; JPMorgan now spending a half-billion on cyber security.Target (TGT): Data from over 70 million shoppers stolen; Cost Target $148 million and financial institutions $200 million; Target’s CEO and CTO resigned.
Really, that’s just a small sample size. Other high-profile victims recently hacked: Verizon, Anthem, MySpace, British Airways, AshleyMadison.com, Experian/T-Mobile, Wendy’s, eBay, Uber, UPS, AOL, Neiman Marcus, Sony Pictures, Staples and even the Nasdaq.
And that’s not all, either. A long list of other corporations has suffered the same fate. Click here to see a scatterplot of global data breaches over the last decade.
Cyber Security Incidents on the Rise
Since 2009, reported cyber security incidents have surged at a compound annual growth rate of 66%.
For the record, PricewaterhouseCoopers (PwC) reported 59 million incidents in 2015. That’s a 38% jump from 2014 (the last year in the chart below).
Source: 1. Managing Risk in an Interconnected World: Key Findings from the Global State of Information Security Survey 2015, PwC September 2014.
These growing numbers result in an enormous bill for the world’s economy.
Intel Security Group (previously McAfee) estimates that cyber crime costs the global economy a monstrous $400 billion each year. And according to a Verizon report, the average losses from a cyber attack range from $475,000 to $8.9 million depending on how many records are stolen.
Cyber attacks are expected to cost $2.1 trillion annually by 2019. To put that in perspective, that’s equal to 21 Hurricane Katrinas every year.
Even President Obama is ramping up cyber security efforts …
Not too long ago, Obama announced the implementation of a Cyber Security National Action Plan (CNAP). Basically, CNAP puts in place a long-term strategy to:
Enhance cyber security awareness and protections Protect privacy Maintain public safety as well as economic and national security Empower Americans to take better control of their digital security.
The President’s Fiscal Year (FY) 2017 calls for $19 billion in cyber security investment.
There is also a growing effort to make U.S. Cyber Command its own agency, independent of and equal in status to the NSA.
Whether you like President Obama or our next Commander-in-Chief, cyber security is critical to protect our nation’s future.
According to defense, military, and national security leaders, cyber warfare is the No. 1 threat to the U.S.
Source: 2014 Defense News Poll
Yes, respondents ranked cyber warfare as a much-larger threat than terrorism!
Globally, government entities are struggling to defend against cyber attacks.
Here are three examples of large data breaches within our government and its agencies:
U.S. government: 22 million records stolen (addresses, health and financial history, and other private details); Largest cyber attack into the systems of the U.S. government.IRS: Cyber mafia obtained 100,000 tax forms; Crooks used 15,000 of them to claim tax refunds in other people’s names.Voter database: Information on 191 million U.S. voters exposed; Database included names, addresses, birth dates, party affiliations, phone numbers and emails.
There’s more where that came from, too …
The Syrian government, Hillary Clinton’s campaign, Australian Immigration Department, Turkish citizenship database, U.S. Office of Personnel Management and U.S. military have all been hacked. The Senate Armed Services Committee reports the U.S. military was hacked at least 20 times in 12 months!
You can find all government-related hacks in the same scatterplot I mentioned earlier.
Getting back to the “bug guy,” if you’re an individual or small business owner, you need protection against these threats.
As one liability insurance expert said:
“There are two types of people. Those who know they have been hacked. And those who don’t know they have been hacked.”
Even the smartest tech heads around aren’t confident in protecting against cyber attacks.With 93% of cyber attacks taking minutes — or less — to penetrate networks, even the smartest tech heads are sitting on the edge of their ergonomic chairs.
To put some numbers behind this … only 20% of IT bosses from major corporations are confident they’re fully prepared for a cyber attack. In fact, 97% of those IT bosses say they’ve already suffered at least one attack.
Plus, imagine going about your business as normal … only to find out a data breach occurred a week or more ago. That’s a real problem, too — 80% of data breaches are not detected for a week or more after the incident.
What Should You Do?
Here’s a shortlist of three reputable options to help you keep, or regain, your digital identity (there are many more):
As an investor, you have options too. There are 200-plus publicly traded companies around the world with some business lines related to cyber security.
But there’s one simple, clear-cut way to profit from the demand for cyber security …
The PureFunds ISE Cyber Security ETF (HACK).
The idea was engineered by 31-year-old ETF wunderkind Andrew Chanin. He’s the CEO of PureFunds, an ETF sponsor founded in 2010.
PureFunds has eight innovative ETFs in its line-up:
PureFunds ISE Junior Silver ETF (SILJ) PureFunds ISE Big Data ETF (BIGD) PureFunds Drone Economy Strategy ETF (IFLY) PureFunds Video Game Tech ETF (GAMR) PureFunds Solactive FinTech ETF (FINQ) PureFunds ETFx HealthTech ETF (IMED) PureFunds ISE Mobile Payments ETF (IPAY) And the aforementioned HACK.
According to Chanin, HACK was started as an ETF for the people.
Many investors had expressed difficulty in investing in cyber security. First, it was hard to decipher which technology names were true cyber security companies. And second, a broad-based technology fund just didn’t provide much exposure to this niche area. So Chanin developed HACK.
His creation — launched in November 2014 — gives investors a cyber security vehicle that reduces individual company-specific risk and provides diversification across a typically volatile industry.
Image credit: YCHARTS
Last week, I caught up with him to pick his brain on his firm’s flagship ETF.
I asked him to tell me why investors should consider a cyber security ETF for their portfolio.
Here were his top five reasons:
1.) We have yet to experience a catastrophic cyber attack. But many industry experts believe that it is only a matter of time.
2.) Governments, corporations and individuals must continue to spend on cyber security solutions — regardless of economic cycles.
3.) Because of this need to spend, cyber security stocks may experience uncorrelated returns to other areas of the broader technology sector.
4.) HACK provides instant diversification to over 30 companies from around the globe that specialize in various areas of the cyber security industry.
5.) Many diversified technology and defense companies have expressed interest in expanding their cyber security footprint. Since building cyber solutions organically is difficult, it is possible that these companies may look to acquire existing publicly-traded cyber security companies.
The fund hasn’t gone unnoticed. It broke the $1 billion mark in assets (a notable feat) back in 2015. Two top hedge funds — Citadel Advisors and Tudor Investment Corp. — have owned the ETF.
HACK has even scored several awards in its short existence:
ETF Newcomer of the Year (Fund Action ETF Performance Awards 2016) Best Specialist ETF (Fund Action ETF Performance Awards 2016) ETF Innovative Product of the Year (Fund Action ETF Performance Awards 2016) Most Innovative ETF, Americas (11th Annual Global ETF Awards) Most Marketable ETF Ticker, Americas (11th Annual Global ETF Awards) Most Innovative ETP of 2014 (Capital Link Annual Closed-End Fund & ETP Awards) ETF Ticker of the Year (ETF.com Awards 2014)
Why Could Now Be a Good Time to Invest?
You can buy the ETF 20% cheaper than just over a year ago. For comparison purposes, the Russell 2000 Index has fallen about 5% since June 2015.
In the last several weeks, venture capital has taken notice. BitSight raised $40 million, Claroty raised $32 million and StackPath raised $150 million (all cyber security startups).
Performance is picking up in cyber security-related names.
Take HACK’s performance in the last few months …
As you can see above, where the broader market has flat-lined, HACK has continued to appreciate in the last couple months. The blue region shows the accumulated alpha HACK investors have enjoyed over this short period.
Just since June 28, HACK’s return has more than tripled the S&P 500’s return.
Growth is projected to at least double in six years. The global cyber security industry was $75 billion in 2015. Looking out to 2021, not one estimate has the industry below $150 billion.
And last, as Chanin said, cyber security is a must-have for any publicly traded company in existence today. Just one data breach could put a company out of business. Having no cyber security plan in place is like having no flood insurance while living on the Mississippi River.
If you agree that cyber security will continue to be an ongoing commitment for governments, corporations and individuals world-wide, HACK is a way to profit from ongoing — and increasing — cyber security demand.
HACK can serve as a viable satellite position in any portfolio (individual investor, financial adviser or institution).
This ETF follows the ISE Cyber Security Index (a rules-based cyber security index) … has $785 million in assets … trades about 300,000 shares per day … charges an expense ratio of 0.75% … rebalances quarterly … and contains 35 holdings for ample diversification. HACK could potentially double your money by 2020.
This article originally appeared on Uncommon Wisdom Daily.