Everett Collection
The disclosure from Yahoo Inc. on Thursday that a huge security breach had affected at least 500 million users was the latest reminder of the vulnerabilities that exist online — and the need to take protective measures.
That comes on the heels of Dropbox Inc. announcing that millions of its users had their login information compromised in a 2012 hack.
But while people may be confused about how to safeguard themselves against attacks on Yahoo YHOO, -1.37% and other enterprises, the hacks highlight the merits of owning a fund that has blossomed as cybersecurity issues have increasingly become a flashpoint.
See: Got a Yahoo email account? Here are 3 things you need to do now
The PureFunds ISE Cyber Security ETF HACK, +0.83% , a passive exchange-traded fund that is comprised solely of stocks tied to the cybersecurity industry, has become one of the most popular ways for investors to get exposure to this fast-growing tech subsector. The fund launched in November 2014 and attracted $1 billion in investor money within seven months. It now has $783 million in assets under management.
The ETF is up 2.9% for the week as of Thursday’s close, and it has risen 6.7% so far in 2016.
“It made sense to offer a fund that looks at the overall space. You don’t want to just be in one name because this is a volatile industry, and some solutions can become obsolete overnight,” said Andrew Chanin, chief executive officer of PureFunds. He added that the fund included firewall-related investments, anti-virus companies, multifactor authentication outfits and entities that deal with post-attack recovery. “It’s a very diverse group, but they’re all covering this growing concern.”
Read more about Chanin: How a 29-year-old grew a $1 billion tech fund in 7 months
Another fund tracking the burgeoning digital security space — the First Trust NASDAQ Cybersecurity ETF CIBR, +0.44% — was launched in July 2015. It has $99 million in assets and a 45-day average trading volume under 25,500 shares. HACK’s average volume is at nearly 200,000 shares.
The two funds boast a similar composition; half of the First Trust ETF’s top 10 holdings also appear in the bigger fund, albeit in different proportions. CIBR is up 9.5% year to date.
A steady drumbeat of attacks has kept the industry in focus of late. In July, the emails of the Democratic National Committee were hacked; the messages subsequently appeared on WikiLeaks. A few days later, a different cyberattack occurred on both Hillary Clinton’s presidential campaign and the Democratic Congressional Campaign Committee. Those followed much earlier breaches into Target Corp. TGT, +0.15% Sony Pictures Entertainment, and infidelity website Ashley Madison.
According to a 2015 report from the Ponemon Institute, which tracks cybercrime, the cost of hacks has risen 82% over the past six years.
“Most companies are underprepared,” said Chanin. “That highlights the potential for more spending on cybersecurity going forward, and for more M&A as technology and defense companies realize they need to have a bigger footprint in the space.”
The industry has been a popular one for takeovers. In June, Cisco Systems CSCO, -1.04% — itself a top 10 holding in both ETFs — agreed to buy the privately held cloud-security firm CloudLock Inc. for $293 million, a deal followed by Carbon Black Inc.’s purchase of Confer Technologies Inc. for $100 million in July.
It has also been a rare corner of the market to see strong, consistent organic growth. Among PureFund’s top holdings, AVG Technologies NV AVG, -0.04% has posted average revenue growth of 15.4% over the past five years, according to FactSet data. Over the same period, Imperva Inc. IMPV, +22.59% has posted average sales growth of 33.7%, while Proofpoint Inc. PFPT, +0.37% has seen average growth of 32.7%. CyberArk Software Ltd. CYBR, +3.58% , which went public less than five years ago, has posted average revenue growth of 45.4% over the past four.
“Until we don’t see any more breaches, this will be an area that grows,” Chanin said.
This story was first published on Sept. 1, 2016.
