E Two Investment Options For The Security Sector Bull Market

Security ETF Pure Play

Many investors, such as myself, have been waiting for a pure play security ETF to hit the market. This November, the PureFunds ISE Cyber Security ETF (HACK) was introduced. Early market volume shows a lot of interest in the fund, and I expect that the continued deluge of cyber crime news stories will continue to drive trading on this ETF higher over time. HACK is based upon the  ISE Cyber SecurityTM Index , which has had tremendous growth since 2011. The immediate and medium term interest in the index and fund look very bullish. 

The fund invests in companies whose primary role is cyber security. The funds are adjusted so that no fund is over 20% of holdings and no group of heavyweights is over 50%. Therefore, the fund broadly addresses the security solutions market. 

The top ten funds include well-known security players such as Symantec (SYMC), Barracuda (CUDA), Splunk (SPLK), Palo Alto (PANW), and Qualys (QLYS). The fund also includes many smaller funds such as Imperva and Intralinks. Security sector coverage is shown in the next figure. 

My belief is that the IT Consulting and Services sector will experience sharp growth due to the need for security awareness, education, and customized services most companies are seeking. Increasing regulatory requirements alone are driving growth in custom implemented security services.

Communications equipment will also experience strong growth as more complex security logging and monitoring solutions are pushed down to the lower layers of the network stack. End to end network encryption solutions, such as those that are currently being discussed for point of sale terminals and online credit card transactions, will require updated devices capable of handling additional processing power needed to encrypt and decrypt network packet data as it moves across the Internet.

I will continue in future articles to discuss security investment options and trends that the keen investor should be aware of. The cyber security industry offers potential out-sized returns as a growth investment. In addition, I believe many security companies are just scratching the surface of their potential profits, making the security sector a big value play at the same time. Such is the nature of long-term bull market opportunities. 

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The author is not invested in any funds mentioned in the article. 

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