Breach, Breach, Breach…
This has become too common a word in the headlines over the past 12-18 months both domestic and globally. Chances are you have been affected directly or indirectly (knowing someone else) because of a data breach. The major ones we know about because they made national headlines like Home Depot, Sony, and Target. What about the ones that didn’t make major headlines or reported to only their network? I can tell you first hand I was recently in Vegas for a promotions trip and found out my credit cards had been compromised by staying at Hard Rock in Las Vegas. I got notifications from my credit cards, not from Hard Rock, that my information had been compromised. Hard Rock was never in the paper, but hackers did their jobs once again.
This is becoming the new norm, the way things go. Records get hacked, identities get stolen, and in the end consumers spend lots of time cleaning it up. Companies are now taking more responsibility because it impacts their image, their brand, and most importantly, their profits. Profits are affected because consumers quickly turn away and shop elsewhere. When profits are affected, people lose their jobs because let’s face it, someone must take the fall. There has to be a fall guy, that’s just the way it works.
The new CTOs (Chief Technology Officer) and CEOs (Chief Executive Officer) are adapting to the new standards. They are taking more responsibility to protect their companies and their brands. They are investing heavily in Cyber Security and it will soon account for larger portions of their budget. In a Fidelity sponsored newscast, Maria Bartiromo, quoted, “Cyber Security will represent one of biggest costs for businesses in the next 5 to 10 years.” She relates the need to protect the data for customers because as we have already seen, one major breach can have a tremendous impact on customer confidence. Bartiromo is a well respected editor on the Fox Business Network.
This all brings me to an investment idea to take a look for cyber security. The idea I’d like to discuss is a cyber security ETF (Exchange Traded Fund) called HACK. HACK is currently the only pure cyber security ETF consisting of 26 different positions, providing diversity to spread out potential risk. Among the holdings are common names like Symantec and Imperva leading the way with cyber security.
Since its inception in November 2014 (debuting with a share price of 25.10), the fund, HACK, has returned over 22% in just over six months, ending May 2015, with a share price of 30.68. As more companies continue to take the proactive approach to avoid being on the front page of CNN, more cash flow will continue to pour into cyber security to protect customer information. A very attactive feature is the average market cap of the companies sitting at a modest 2.5 billion. Just as a comparison, Facebook (FB) has a market cap of over 225 Billion as of May 2015, showing the type of growth this ETF has.
Given all the information and future trends, I would recommend taking a serious look at HACK for your portfolio for the next 3-5 years for its growth potential. If HACK is proven successful, it could be worthwhile to check the landscape annually to see if any competitor ETFs emerge and provide more opportunities.
To find out more about financial markets and investing, please see Alex’s investment book – Investing Should Be Easy, available on Amazon.com.
Alex Richwagen is an investment research analyst. Any of his recommendations are that of Mr. Richwagen, the information presented by him is the opinion of his research. All investment decisions are your choice and should be based on your own analysis.