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With cyber security and ransomware again in the media recently, we have seen an increased investor focus in this space. Over the years, cybercrime has developed in sophistication and scale to cause major economic ramifications for those affected.
The risks of your social media accounts being hacked are dwarfed by the risk to other sectors like financial services, health care, manufacturing, government and transportation, with many countries and companies alike being labelled as “sitting ducks” for attacks.
ETFS Morningstar Global Technology ETF (ASX: TECH) provides exposure to quality global tech companies and captures the growing trends across the tech sector. TECH allows investors to access individual themes, such as cyber security, through a broader sector ETF, with companies vetted for quality and value through Morningstar’s ‘Moat’ methodology and price-to-fair-value screen.
Renting out IT capacity in the cloud rather than building it yourself, cloud computing is arguably the biggest tech trend of this decade.
Software as a Service
This service continues to grow, representing a bigger piece of the pie as companies move to the cloud model and a subscription model of accessing the latest and greatest secure software at all times.
5G and the companies that enable 5G technology, the semiconductors and required equipment are also favoured trends in technology.
The Internet of Things (IoT)
The Internet-of-Things is something we continue to hear more about, making devices smarter, with more sensors, more processors, and greater connectivity.
Big data is an ongoing trend, allowing business to capture and analyse data and store it efficiently.
Cyber security continues to be a focus, accelerated by the global move to remote working and the need to access networks and software from different devices and in different ways.
Trend in Focus: Cyber Security
Looking further into the theme of cyber security within the ETFS Morningstar Global Technology ETF, there are four companies with a combined weight of 12.1% within the fund offering direct exposure to the theme.
Each of the companies in question generates revenue through the defence of computers, servers, mobile devices, electronic systems, networks and data from malicious attacks, similar to those we have seen recently.
While perhaps not household names amongst investors, Palo Alto Networks, F5 Networks, Okta and VMware are at the forefront of this theme. Each stock has passed Morningstar’s stringent ‘Moat’ methodology and price-to-fair-value screens to appear in the portfolio.
Palo Alto Networks (NYSE: PANW; 4.6% weighting)
Palo Alto Networks is a US-based cyber security company focusing on firewalls and cloud-based security offerings. The company serves over 70,000 organisations in over 150 countries, including 85 names among the Fortune 100.
With clients across government, financial services, health care, education, oil and gas, retail and utilities, it is expected in the increased-threat environment that Palo Alto is well positioned for outperformance.
Morningstar rates Palo Alto with a “narrow” ‘Moat’ rating and a price-to-fair-value ratio of 0.88, indicating that the company has 10 years of competitive advantage and is considered undervalued.
F5 Networks (NASDAQ: FFIV; 3.7% weighting)
F5 Networks focuses on network security, access authorisation and fraud prevention. Going beyond traditional approaches to security, F5 Networks uses behavioural analytics, automated learning, dynamic profiling and risk-based policies for additional security protection. In total, 48 of the Fortune 50 companies are F5 customers.
Operating across 43 countries, F5 networks is well positioned for the surging demand for network security across application networks. The company is currently rated by Morningstar to have a “narrow” ‘Moat’ and a price-to-fair-value ratio of 1.02, indicating that Morningstar perceive this company to be valued fairly with 10 years of competitive advantage against its peers.
Okta (NASDAQ: OKTA; 2.2% weighting)
More than 10,650 global brands trust Okta to secure their digital interactions with employees and customers via Okta’s user authentication applications and identity controls. Customers include FedEx, Adobe, Renault and Zurich.
With a workforce of over 3,500 spanning across the globe, Okta expects US$4 billion in revenue, which includes a 35% annual sales growth rate. Okta is considered to be fairly priced by Morningstar, with a price-to-fair-value ratio of 0.98 and a “narrow” ‘Moat’ rating, indicating competitive advantage over the next 10 years.
VMware (NYSE: VMW; 2.0% weighting)
Through a range of acquisitions from 2011 to 2020, VMware has become a leader in the cyber security space, including the security of mobile devices in enterprises, troubleshoot app security, employee device security, cloud security, breach-detection security and malicious-attack security.
VMware’s customers include car manufacturers such as Mercedes-Benz, a number of banks and financial services companies, including our own ASX, technology companies such as Netflix, plus universities and municipalities such as the city of Rome. VMware is considered by Morningstar to be undervalued with a price-to-fair-value ratio of 0.76 and a “narrow” ‘Moat’ rating.
ETFS Morningstar Global Technology ETF (ASX: TECH)
MER: 0.45% p.a.
- TECH is a developed market, technology sector pure-play ETF
- TECH uses Morningstar’s ‘Moat’ methodology to invest in quality companies with a wide or narrow economic moat, providing them a sustainable competitive advantage
- Morningstar apply a valuation screen, only investing in those companies trading below or closest to ‘fair’ value
- TECH is equally-weighted to instil a dynamic of selling high and buying low, as well as allowing representation of all holdings and limiting single-stock risk
- Research report available on request
For more information on the ETFS Morningstar Global Technology ETF, please contact ETF Securities.
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