ETFs

Cybersecurity Demand Makes for a Beautiful BUG

Working from home is a growing part of the employment lexicon due in large part to the coronavirus pandemic and, with more staffers working from their place of residence, demand for cybersecurity services is growing. That's of benefit to exchange traded funds, such as the Global X Cybersecurity ETF (BUG).

Designed to track the Indxx Cybersecurity Index, the Global X Cybersecurity ETF holds a basket of companies that could benefit from increased adoption of cybersecurity technology, including companies whose principal business involves developing and managing security protocols to prevent intrusion and attacks on systems, networks, applications, computers, and mobile devices.

Up 36.46% year-to-date, BUG is reaching star status among industry-related technology ETFs and there are credible fundamentals supporting the fund's upside.

“Increased exposure to digital working has made many companies (and their remote employees) more susceptible to cyberattacks. Morningstar equity analyst Mark Cash found there was a 400% increase in cyberattack complaints reported to the FBI from March 2020 to April 2020,” writes Morningstar analyst Sachin Nagarajan.

A Beloved BUG for Investors

Cybersecurity is considered one of several megatrends, which are pervasive across industries and tend to be forward-looking. They naturally resonate with investors and advisors seeking to capture future alpha.

As more businesses look to make the internet of things the core of their revenue generation models, it leaves systems more prone to hackers if the right cybersecurity measures aren’t in place.

Cybersecurity firms help companies defend against these threats--and they’ve benefited,” notes Nagarajan. “Some cybersecurity names include those with fully cloud-based solutions, with CrowdStrike (CRWD), Okta (OKTA), and Zscaler (ZS) among them. All three have experienced at least 40% year-over-year revenue growth.”

Those stocks are the top three holdings in BUG, combining for nearly 24% of the ETF's roster, according to Global X data.

“Zscaler wagered heavily on the secular trend of cloud computing and the ways in which this shift would upend the previous paradigms of network and application security,” notes Morningstar analyst Mark Cash. “Its bet has paid dividends, as it has leveraged a distributed cloud to deliver a multitenant security platform that offers security capabilities traditionally sold as purpose-built appliances. Although Zscaler has been at it since 2007, we think its business model and security approach are in their early innings, and we see a long runway for growth in an addressable market worth tens of billions of dollars.”

That's just one BUG holding, but it speaks to the long-term efficacy of the fund's underlying theme.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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