Cybersecurity is an Attractive Allocation
Multiple catalysts are likely continue to fuel global growth in the industry
Every day we see it in the headlines. A company or government agency was hacked. Maybe it was a data breach or ransomware attack — or both.
What’s certain is that security threats are growing, and as they do the demand for cybersecurity products and services is likely to as well.
It makes sense that businesses see cyber incidents as a key area of concern as cybercrime is expected to rise meaningfully in the years ahead.
Businesses often see key information assets targeted, such as email, making it imperative that they harden their defenses.
The SEC is also stepping up disclosure enforcement, stipulating that publicly traded companies must disclose material incidents within four business days. This is likely to encourage thousands of companies to step up their proactive and reactive capabilities.
Data breaches in the United states already average nearly $10M in costs per company hit. This is a significant hit — and another area of motivation for businesses to consider more thorough vulnerability assessment and remediation as well as hardened network, system, and cloud defenses.
The scale and sophistication of growing cybersecurity threats mean there are major business opportunities in the space, which is expected to grow to $657.02B by 2030.
This may also prove to be a conservative estimate. McKinsey & Company released a research report last year stating that the TAM of cybersecurity globally may be as large as $2T, or about ten fold the size of the vended market.
Another factor that keeps the cybersecurity industry humming along on a positive growth trajectory is the lack of help. There is a significant talent shortage that has been growing.
Globally there is a deficit of 4.07M workers, with much of that being in the Asian Pacific.
This shortage has spurned an innovation cycle that is focused on products and services which can enhance the capabilities of cybersecurity professionals to be able to manage larger workloads across the seven layers of cybersecurity.
Machine learning, automation, and consolidated cloud-based interfaces are areas of improvement that are beginning to unlock greater productivity potential for more complex workloads. Allowing less employees or contractors to complete a larger amount of work in a reasonable amount of time.
As investors, it’s attractive to allocate capital into this space, and particularly within cybersecurity services and software where there’s likely to be a significant amount of growth moving forward.
To get exposure to the space, one can look at an ETF like CIBR, which is liquid, has a low expensive ratio of 0.60% and provides broad and diversified access to equity of companies across the space.
After the recent run in technology things are a little bit overheated in CIBR, so we would be more interested in allocating after some consolidation or even more ideally, a pullback.
This is an investment we would scale into in thirds over the course of three months to build a full position that we would consider holding for 3-5 years, while continuing to dollar cost average in as we build our positions over that time horizon.