Cybersecurity Remains One of Tech's Most Compelling Sub-Groups

It may be getting lost in the shuffle relative to cloud computing and video games, just to name a pair, but cybersecurity is making significant contributions to the technology sector’s upside this year. Just look at the Global X Cybersecurity ETF (BUG), which is higher by 8.45% year-to-date.

Designed to track the Indxx Cybersecurity Index, the Global X Cybersecurity ETF holds a basket of companies that could benefit from increased adoption of cybersecurity technology, including companies whose principal business involves developing and managing security protocols to prevent intrusion and attacks on systems, networks, applications, computers, and mobile devices.

BUG is a play on a growing problem that companies and governments are scrambling to address: increased frequency of data breaches.

“Data breaches have become almost commonplace in recent years,” according to new research from Nasdaq Global Indexes. “Over the last few years, high-profile cases of cyber hacks have increased the demand for sophisticated software and security products. Companies across the globe are growing more aware of the potential threat which is leading to a greater allocation of resources towards companies that help mitigate such risks.”

A Beautiful BUG

BUG does well to play towards the industry, as this sort of scenario is a long-term threat. The thing to note is how technology continues to improve and benefit society, while at the same time, cybersecurity threats increase as well.

Given the greater attention to cybersecurity and the growing industry in an increasingly digitized age, investors can capitalize on the growth potential through sector-specific ETFs, including BUG. BUG is mid-cap ETF with a median market value of $4.4 billion among its 31 components, giving investors a growth profile in a fast-growing niche.

“In order to adequately understand the reasons as to why cybersecurity is important from an investment perspective, it is first vital to understand the growth drivers for cybersecurity as well as the industry outlook,” according to Nasdaq.

Cybersecurity is considered one of several megatrends, which are pervasive across industries and tend to be forward-looking, they naturally resonate with investors and advisors seeking to capture future alpha.

“The impact of cyberattacks has grabbed the attention of the White House, as President Trump has deemed cybercrime one of the biggest issues facing national security. In addition, the President’s 2020 Budget is proposing to allocate $17.4 billion in spending to fund critical initiatives and research in the cybersecurity space, a 5% increase from the 2019 budget,” notes Nasdaq.

For more on thematic ETFs, please visit our Thematic Investing Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.