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A Specialised Exchange Traded Fund

Exchange Trade Funds (ETFs) are simple to use, liquid, transparent and low-cost investment products – and as a result are one of the fastest growing investment vehicles and can provide access to rapidly growing global investment themes. One such ETFs is called HACK offered by Australian fund manager BetaShares Capital.

A CYBERSECURITY FUND

The spectacular growth in online activity and information technology in recent years has, unfortunately, also seen equally strong growth in cybercrime.

Governments, companies and households across the globe are fighting an ever intensifying battle with cyber criminals to prevent abuse of their online information and disruption to their IT related activities. The ongoing health of the global economy – and its ever-growing interconnectivity via online networks – vitally depends on $USB cybersecurity systems keeping one step ahead of those with malicious intent.

Accordingly, global demand for cybersecurity services has grown rapidly in recent years, and strong growth seems assured for the foreseeable future. Given this positive outlook, the BetaShares Global Cybersecurity ETF (ASX Code: HACK) provides investors an easy and transparent way to gain diversified exposure to some of the world’s leading cybersecurity companies.

WHY INVEST IN CYBERSECURITY FIRMS?

Due to the rising number of internet-connected devices across the globe, and the associated rapidly escalating cost of cybercrime, cybersecurity services can be considered a growth sector. According to Gartner Research, global spending on cybersecurity has increased at an annual rate of around 8% since 2011, forecast to reach $US96 billion by the end of 2018. As seen in the chart below, the number of software security vulnerabilities is at an all-time high, with some 11,150 security risks being registered worldwide in 2017.

SOFTWARE SECURITY RISKS: NUMBER OF REGISTERED SECURITY VULNERABILITIES IN COMPUTER SOFTWARE WORLDWIDE

Most major public and private organisations have significantly boosted their cybersecurity budgets in recent years. In the United States, for example, the US Government announced at the start of 2018 plans to boost its spending on cybersecurity by over 4% for FY19 to $US14.98 billion. In another example, US investment bank, JP Morgan, allocated $US600 million to cybersecurity spending in its 2016 annual budget. It also announced plans to work together with seven other major banks to fight financial-services cybercrime.

According to the 2018 Gartner Chief Information Officer Agenda Survey, 95% of CIOs expected cybersecurity threats to increase and impact their organisations.

Earlier this year it was reported by McAfee that the global cost of cybercrime has now reached $US600 billion – or about 0.8% of global GDP. Worryingly, this figure is up 34.5% from 2014 figures. In fact, during the 2017 Berkshire Hathaway annual shareholders meeting, investment guru Warren Buffett cited cyber attacks as a bigger threat to humanity over nuclear weapons.

These costs are only likely to escalate further.In the next two years to 2020, for example, Microsoft estimates the number of people connected to the internet globally will double, from 2 billion to 4 billion. And by that time, internet data volumes will be 50 times greater than today, with more than 50 billion devices – from every- day household appliances to complex business machinery – connected to the internet. Astonishingly, Microsoft itself continues to spend over $US1 billion on cybersecurity annually.

Several other leading research groups predict even stronger growth. Cybersecurity Ventures, for example, estimates cybersecurity spending will be closer to $US1 trillion for the five year period between 2020 and 2025.

Irrespective of the particular projections used, one feature is apparent: the cybersecurity sector is likely to enjoy continued strong “secular” growth in demand for some years to come.

THE BETASHARES GLOBAL CYBERSECURITY ETF (ASX CODE: HACK)

New Zealand investors currently have few local options for gaining exposure to the positive outlook for the cybersecurity sector. With these challenges in mind, the BetaShares Global Cybersecurity ETF (ASX Code: HACK) has been developed to provide investors, within a single investment, diversified exposure to leading global cybersecurity firms. HACK invests in around 30 of the world’s largest global cybersecurity firms which at end-June 2018 had an average market capitalisation of $A21 billion.

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