Jeremy Gleeson, manager of the AXA Framlington Global Technology fund, shares his view on cyber security stocks in the aftermath of the WannaCry attack that has swept across the globe.
Cyber security isn’t a new phenomenon and it has become an increasingly important area of the technology market for the past several decades. However, in the last five years companies have become more and more digitalised and there has been increased vulnerability and therefore a greater need for protection.
The difference about the WannaCry attack is that it’s broader and more indiscriminate than those we’ve seen previously. This has a real impact on businesses.
More regulated industries, such as financial services and healthcare, have historically invested heavily in their cyber security with the big banks and drug companies being some of the biggest spenders in these kinds of security measures. As all other industries become increasingly digital they‘ll need similar protections and this is where we see real investment opportunities.
Chief Information Security Officers (CISOs) will search for extra budgets, or indeed emergency budgets, to gain more cybersecurity budget. As a lot of the vulnerability in the recent attacks came from running outdated operating systems, vulnerability management will become ever more important.
Insight into what’s going on in an enterprise, monitoring which computers have been updated and making sure that everyone is running the most up to date software is key. If this had been taken into consideration at all companies, the recent attacks would not have spread so rapidly.
‘Best of breed’ stocks come from the US and Israel
When it comes to diversity across size and geographies, we see many of the ‘best of breed’ IT security firms coming from the US and Israel. This ranges from smaller companies to $100bn+ companies, thus having a broad base in terms of market cap and geography but also in revenue growth and opportunities.
The smaller security companies have really strong runways for long term growth as people move to these ‘best of breed’ solutions companies.
The AXA Framlington Global Technology Fund has an approx. 8% exposure to cyber security firms, a sector we have invested in for a very long time. Current holdings include Proof Point, an enterprise software business whose products include cybersecurity tools that help prevent malicious email and web-based attacks.
We invested in the company back in May 2013, when it had a market cap of less than $700m, and quarterly revenues of approximately $31m.
Currently the investment is a top 15 position for us, and the company has a market capitalisation of over $3.5bn and quarterly revenues of $113m. The company’s shares went up by 7% (due to the nature of the WannaCry attack coming from receiving malicious emails).
Other key stocks in the portfolio include Palo Alto Networks, which provides a wide suite of enterprise-level next-generation firewalls with a diverse range of security features, and Cisco which covers a wide range of enterprise class security.