Cyber security fund soars past $1b

Investors have been piling on to the exchange traded fund in wake of recent hacks and data thefts

24%

2.1%

2.56b Gain by investors in the Hack ETF this year. Gain on the S&P 500 index over the same period. Number of attacks on Japanese websites in 2014.

Investors have this year pumped more than $1 billion (Dh3.67 billion) into an exchange-traded fund that tracks cyber security stocks as they clamour to bet on a growing industry following high-profile hacks and data heists.

The passive investment vehicle, with the appropriate financial ticker Hack, was only launched in November but crossed the $1 billion mark in size in June, according to ETF.com, a data provider, as investors ignored its relatively expensive fees and placed bets on the online security industry’s future.

Investors in the ETF have been rewarded with a 24 per cent gain this year, compared with the S&P 500 index’s 2.1 per cent rise.

High-profile attacks including the breach at Sony Pictures, Anthem Healthcare and the US retailer Target have elevated cyber security from a back room IT issue to the boardroom.

The cyber security industry says it sees signs of increased budgets for cyber security, most of which will go to purchase technology. But one report from professional services firm PwC last year suggested the increases were uneven and that overall businesses were spending slightly less on security in 2014 than the year before.

Beneficiaries

The potential beneficiaries of increased security spending stretch from large listed technology companies with cyber security units such as Intel, which bought antivirus software maker McAfee in 2010, and IBM to small startups founded by ex-military people or former hackers.

Venture capital funding has been flooding into these smaller companies, which raised more than $1 billion for the first time in a single quarter this year, according to data from private company research firm PrivCo.

The cyber security exchange-traded fund includes both large public companies such as Cisco, Juniper and Symantec, as well as a new generation of security companies.

Those that went public more recently include FireEye, which became known for its purchase of incident response company Mandiant, which has been called out for some of the most significant breaches, and Palo Alto Networks, a next generation firewall company.

Christian Magoon, consultant to ISE ETF Ventures and YieldShares founder, helped launch Hack last autumn, and has suggested the ETF could be used by hedge funds or others looking to offset against the risk of cyber attacks impacting other stocks they own.

It is little surprise that the sole Japanese stock in the Hack ETF is Trend Micro — the country’s most successful cyber security company, which has been raising red flags over Japan’s growing vulnerability to hacking before the dangers were widely appreciated.

Shares in the company have surged over the past two years, but particularly after their inclusion in the cyber security ETF.

Japan’s companies and government have become an increasingly juicy target for international hackers. There were 25.6 billion attacks on Japan’s corporate and public sector websites in 2014, which was twice the 2013 total. The latest high-profile case, which was revealed in May, involved the theft of 1.25 million files from the Japan Pension Service.