Cybersecurity: Investment Deep Dive

Cyber-crime is something that affects almost every person and business that is connected to the internet. Risks are only increasing as more people get online and the number of connected devices grows.

The market for cyber crime prevention is estimated to grow to $350 Billion by 2030, presenting an interesting opportunity for investors to buy into a sector with retail, commercial, industrial, and governmental level applications.

We recently caught up with cybersecurity specialists from Nasdaq and Legal & General Investment Management to discuss the investment merits of the cybersecurity sector. You can watch the replay here.

Following the recording, you had more questions for us, so we invited back Aude Martin, ETF Investment Specialist from LGIM to give you some answers:

How are governments coping with the spread of attacks?

Aude: With cyber-attacks becoming more sophisticated, governments are increasing their budget allocated to cybersecurity solutions. The UK government has planned on investing £1.5bn into the creation of a new National Cyber Force to bolster the UK’s ability to fight against cyber criminals at a large scale. In France, ransomware attacks were multiplied by 4 in 2020, which led the government to prioritize budget towards cybersecurity solutions in the midst of the pandemic; €0.5bn will be allocated to cyber defences.

The US allocated a $17.4bn budget to cybersecurity in 2020. Governments increasing their cybersecurity-related budget is a global phenomenon, and the global government data cybersecurity market could exceed $70bn USD by 2025 according to a Research and Markets report, which represents about 23% of the global cybersecurity market size.

Global governments’ spending mostly go towards defence companies with strong cybersecurity capabilities, which we have exposure to in our L&G Cyber Security UCITS ETF. In most cases, the protection needs of national-security institutions – whether GCHQ or the Pentagon – can only be met by defence firms. These companies are specialised in cross-border attacks and possess the ability to build defences at the requisite scale. In order to embed security products into their business verticals, aerospace and defence companies have developed end-to-end cybersecurity strategies, hired specialized workforce, partnered with IT and software providers, and have been on an acquisition spree too.

Take BAE Systems as an example. The company shifted its strategy towards cybersecurity solutions by acquiring five cybersecurity firms between 2001 and 2018. In August 2020, BAE won an $85 million five-year contract to continue developing and deploying solutions for secure information transfers between US government networks. BAE also partners with many software vendors that specialize in cloud services and employs over 10,000 people in its Intelligence & Security Group.

Over the years, aerospace and defence companies have been at the forefront of innovation across a wide range of Internet of Things, AI and cloud technologies that are only now being exploited in the wider cybersecurity field. The focus on AI-related cyber solutions is also the result of the growing concerns about AI’s impact on attacks.

In 2020, Thales introduced its new AI-based Cybels Analytics platform, which allows users to detect sophisticated attacks in real time, including new unknown threats. Cybels Analytics increases the number of indicators of detection by a factor of three, helping to reduce detection time down to a few days from the prior average of three months.

Governments also reach out to other corporations to benefit from a wider range of cyber solutions. To name a few, BlackBerry and FireEye offer products and services to governments; from security software to training services. McAfee and Intrusion, which were added to the L&G Cyber Security UCITS ETF earlier this year, also provide their cybersecurity solutions to governments; McAfee offers antivirus, cloud and endpoint protection while Intrusion is a leader in network security and advanced threat intelligence.

Source: BAE, BlackBerry, FireEye, Thales, LGIM Blog

How can a company know whether it is protected against attacks? How is the L&G Cyber Security UCITS ETF portfolio reflecting those cybersecurity solutions?

Aude: It’s difficult for a company to assess whether it is sufficiently protected against cyber-attacks. Cybersecurity solutions providers that are part of the L&G Cyber Security UCITS ETF are able to assess their clients’ cyber resilience with the help of their advanced tools and workforce.

CheckPoint offers cybersecurity trainings and certificates. The company also provides a variety of courses through programs – for example, the HackingPoint education program is directed towards security experts. CheckPoint aims to provide students with a greater knowledge in cyber threats and how to protect their corporate network and resources.

Cybersecurity solutions providers as BlackBerry, FireEye and Palo Alto Networks also have red teams testing clients’ cyber resilience. These teams use powerful hacking tools to test the strength of clients’ cyber solutions by trying to hack into their systems. It allows to assess organisations’ cyber risks to advise them on needed cyber solutions. Palo Alto Networks offers a complete assessment service through its Cyber Range, which challenges participants to maintain the security and stability of a network and application infrastructure.

A typical Cyber Range session consists of five teams: the green team which creates the user and server application traffic, a red team acting as a malicious user compromising server, the yellow team which simulates innocent users clicking on phishing links, a white team launching cyber-attack scenarios and the blue team representing the network operations centre. Indeed, it is essential to test organisations’ system to identify vulnerabilities and update their security solutions regularly.

These companies will also advise corporations on suitable cybersecurity software and services. Indeed, depending on the company’s sector and the infrastructure used, a variety of cyber solutions are available. It is difficult for a company to understand the different services and software solutions; it needs guidance provided by experts in the cyber field. Consultants such as Booz Allen Hamilton provide cybersecurity as a service to help public and private institutions navigate through cybersecurity products. Cisco also provides advisory services to help its client adopt the best-suited cybersecurity strategy.

Adequate incidents response isn’t sufficient to build a strong cybersecurity defence architecture; prevention is another critical cyber segment to rapidly detect threats. Data analytics tools play a major role in that segment; companies like Sumo Logic, Intrusion and Tenable Holdings offer such capabilities.

Sumo Logic provides a continuous intelligence software platform allowing organisations to analyse application, infrastructure, security, and IoT data. Intrusion is a leading network security provider specialised in advanced threat intelligence solutions. Tenable Holdings’ Tenable Cyber Exposure Platform translates raw technical data into business insights clients can use to adapt their cybersecurity strategies: it calculates, communicates and compares customers’ overall exposure and effectiveness at addressing identified issues.

A key area which is witnessing innovation is authentication and access management security. SailPoint and Thales provide identification solutions, securing users’ access to different platforms, such as cloud or multi-cloud infrastructure. With the rise of the lateral movement type of hacking technique, where a hacker can mimic a typical user to penetrate a corporation’s network, cybersecurity companies are implementing robust zero-trust architecture.

Aude Martin is ETF Investment Specialist at Legal and General Investment Management. For more information on ETFs that track the cybersecurity theme, visit our ETF screener.