Thematic investing: Introducing Cybersecurity

In an increasingly digital world, the threat of cybercrime has become impossible to ignore. The world has digitised – from personal banking to entire businesses functioning solely online – and in recent years cybercrime has become ever more sophisticated and wide-ranging. The World Economic Forum ranked cybersecurity failure as the fourth highest critical threat to the world.

What is the potential growth for Cybersecurity?

The growth of cybercrime activity and cybersecurity investment has boomed in recent times but in a post-COVID world where more and more services have become digitised, cybersecurity has become a business priority and as such is expected to grow and become increasingly profitable.

In the U.S. the cybersecurity market was valued at $156.5bn in 2019, with more than half of the market focused on services rather than software or hardware. In 2027, the market is forecasted to be worth over $326bn, representing a compound annual growth rate (CAGR) of c.10%.

 

Source: First Trust, Identity Theft Resource Center, Cyberscout and Statista 2021

Information versus fake news

In a world where information is power, digital boarders need defending as fiercely as physical partitions. This can be demonstrated by Russia’s interference in the 2016 US presidential election via social media and more recently with the Ukraine invasion.

Western countries have made protecting information and shielding citizens from malicious influences their national priorities. We feel that recent geo-political tensions are likely to provide an additional boost to the industry at government and business levels, thus boosting investor returns.

What are the long-term drivers for cybersecurity?

Key drivers for the growth of cybersecurity include: innovation, urbanisation and regulation.

Technological innovation has created new security needs. For example, much effort is being made towards transitioning to autonomous cars. This sector would simply not be viable without stringent security measures in place.

Substantial investment is required to urbanise and secure infrastructure such as power plants, airports, etc. More than half the world’s population now lives in urban areas and that proportion continues to rise.

New regulation around the security of their data is imposed on public and private companies with increasing regularity. The introduction of the EU’s Global Data Protection Regulation (GDPR) in 2018 has further fuelled demand for cybersecurity and cyber-awareness across the industry.

Bowmore Portfolios

Amid the Technology sell off during the months of January and February, we felt it was an appropriate time to gain exposure to the cybersecurity theme, a sub-sector of technology. We took the opportunity to introduce the First Trust Nasdaq Cybersecurity ETF across all portfolios within the Global Themes sector. We believe this is an efficient and cost-effective way to expose ourselves to a growth sector that can continue to increase its revenues over the coming years.

In other news

 Yesterday, the Bank of England mirrored the Federal Reserve (Fed) and raised interest rates by 0.25% to 0.75%, as was widely expected. However, unlike the Fed there was a distinctly dovish tone to the hike. Most notably, a board member of the Bank of England argued that he would have felt it prudent to wait and see how the increase of commodity prices would affect the UK economy and inflation before raising rates.

 

 

 

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