Investors frequently hear that they should be investing for the long-term while trying to ignore near-term market gyrations. With the benefit of hindsight and historical data, it is clear that long-term investing has its merits, but some more volatile, higher beta industries and sectors do not always jibe with investing for the long haul.
At least on the surface. Among exchange traded funds, the PureFunds ISE Cyber Security ETF (NYSE:HACK) might not jump off the page as the epitome of a long-term investment. Some naysayers have even questioned whether or not HACK is more fad than an ETF with legitimate staying power. Well, HACK has addressed the latter point with aplomb, pulling in nearly $1.1 billion in assets in less than a year of trading.
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As for the long term, HACK has plenty of merit on that front, much of it driven by the ever-increasing cost of defending against cybersecurity costs. Simple economics dictate that the more companies have to spend on defending against cyber attacks, the more that trend should benefit HACK holdings such as Cyberark Software Ltd. (NASDAQ:CYBR), Symantec Corp. (NASDAQ:SYMC) and Palo Alto Networks Inc. (NASDAQ:PANW).
$15 Billion Attacks
"A sixth-annual study by the Ponemon Institute pegged the average annual cost of cybercrime per large U.S. company at $15.4 million. That's up 19 percent from $12.7 million a year ago. It also represents an 82 percent jump from Ponemon's inaugural study six years ago," the Associated Pressreported.
Investors needing more catalysts beyond increased spending can consider the fact that analysts have recently highlighted several HACK holdings, including Palo Alto Networks and Fortinet Inc. (NASDAQ:FTNT) as potential takeover targets for large, old guard technology companies looking to bolster their cybersecurity footprints.
Still, the spending catalyst is impossible to ignore when it comes to HACK.
"Market research firm Gartner says global spending on IT security is set to increase 8.2 percent in 2015 to $77 billion, and the world will spend $101 billion on information security in 2018," according to Cyber Security Ventures. "The cybersecurity market is estimated to grow to $170 billion (USD) by 2020, at a Compound Annual Growth Rate (CAGR) of 9.8 percent from 2015 to 2020, according to a report from Markets and Markets. The aerospace, defense, and intelligence vertical continues to be the largest contributor to cybersecurity solutions."
A Compelling Case
Traders that insist on being, well, traders when it comes to cybersecurity ETFs can avail themselves of the HACK's double-leveraged counterpart, the new Direxion Daily Cyber Security Bull 2X Shares (NYSE:HAKK).
ETF issuers, like any good stakeholder, are quite proficient at talking their respective books, but Direxion's fact-based commentary builds a compelling case for cybersecurity ETFs.
"The World Economic Forum (WEF), cited cyber-attacks as one of the fastest growing and highest impact risks for the world economy. This reflects both the growing sophistication of cyber-attacks and the rise of hyper connectivity, with a growing number of physical objects connected to the Internet and more and more sensitive personal data including about health and finances being stored on cloud servers. In the United States alone, cybercrime already costs an estimated $100 billion each year. Gartner Inc., a technology research firm predicts information-security spendingwill rise 7.1% in 2015, to $77.2 billion, andwill reach $106.1 billion by 2019," according to a Direxion note.
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