Technology

Cybersecurity as an investment theme

Digital crime is no longer just the domain of individual hackers operating from murky basements. These days many countries have entire cyber armies that stand ready to go to war, and every target whether corporate, governmental, military or civilian seems fair game. As does every piece of crucial infrastructure they can get their hands on via digital means or otherwise.

Countries are fighting wars with drones and robots, and the devices we use in our daily lives are becoming increasingly connected to the internet(Internet of Things) which makes it possible to weaponise them. Cyber crime, data theft and online manipulation is on the rise and can do physical, political and economic damage.

Long story short, the need to protect all of this crucial digital infrastructure is ever growing and governments, companies and individuals will be willing to pay for products and services that offer security. As we hook up more and more of our lives to the internet, that need will only grow, and many companies are stepping into the gap. Investing in firms that provide data protection, firewalls, anti-virus and other cybersecurity should provide solid long-term returns as their products and services become a necessity.

Portfolio construction: two ETFs

CategoryNameIDTERAlloc %
ETFFirst Trust Nasdaq Cybersecurity ETFCIBR0.60%50.0%
ETFETFMG Prime Cyber Security ETFHACK0.60%50.0%

Risk level: high / diversification: low

  • Dividend yield: 0.1%
  • Ex-ante predicted volatility: 13.9%
  • 1 year 95% Value-at-Risk: –23.3%
  • Scenario 2008 Lehman Brothers default period: -24.7%
  • Scenario Interest rates +100bps: +9.8%
  • Scenario 2008-2009: -8.0%
  • Scenario 2010 onwards: +201%

Categories: Technology, Themes

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