Advisory Blog
Thematic Investing Series: Cybersecurity

Timely insights on the issues that matter most to investors.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Yana S. Barton, CFA, Portfolio Manager, Growth Team, Eaton Vance Management and Lewis R. Piantedosi, Director of Growth Equity, Eaton Vance Management

      This is our first post of a multi-part series focused on long-term thematic investment opportunities.

      Boston - Cybercrime is projected to cost the world $6 trillion annually by 2021, a 200% increase from 2015, according to Cybersecurity Ventures. Increasingly, the digital world is presenting a unique set of challenges for consumers and public institutions, which we believe will usher in an era of growth, innovation and opportunities for IT software security companies.

      As quarterly earnings season comes to a close, investors are reminded yet again that growth is scarce overall. Approximately 90% of companies have reported 2018 results and guidance for Q1 suggests a yearly earnings decline of 2.9% for the S&P 500 Index.

      As "average" corporate earnings expectations continue to reset lower for the rest of 2019, we remain focused on outliers -- stocks of companies we believe can grow through economic cycles as they capitalize on multi-year tailwinds of rapidly changing industry dynamics and new market opportunities. We believe cybersecurity industry is one such beneficiary.

      Blog Image Cyber Growth Feb 27

      Major data breaches continue to illustrate the threat that hackers pose to businesses and consumers. Data fraud and cyberattacks were listed in the top five global risks on the World Economic Forum's 2019 report.1 Cybersecurity companies work to combat the growing problem of cybercrime, and those with the best solutions may see strong revenue and profit growth in coming years. Here's why:

      • Rising connectivity: We are living in an increasingly connected world. By 2025, the number of connected devices is expected to double, and people will interact with a device every 18 seconds compared with 6.5 minutes today.2
      • Cybercrime is rising: Data breaches and cybercrime are increasing. Breaches in just the first half of 2018 exceeded the breaches in 2015 and 2016 combined. In addition, the estimated number of attacks per week was 17 million last year, up from 122k in 2014.3
      • Global cost of cybercrime is on the rise: The average global total cost of a data breach reached $3.9 million in 2018, an increase of over 6% from the previous year. The average cost of a lost record increased to $148, an increase of approximately 5%.The average cost of data breaches in the U.S. reached $7.9 million in 2018, the highest in the world and twice the global average.4
      • Big and growing market: The worldwide cybersecurity market is expected to grow to nearly $250 billion by 2023, an increase of 10% on a 5-year compound annual growth rate (CAGR) as shown in the figure above.
      • Multifaceted opportunities: Companies offering solutions to safeguard payment, cloud and firewall data security, and identity governance should benefit, in our opinion. Blog Image Cyber Privacy Feb 27

      • Still early: Next-generation security solutions are still early in the adoption curve. For example, cloud security is expected to grow at three times the average rate of the broader security sector.5

      Bottom line: We are excited about the long-term opportunity in this space and are investing in stocks of companies we believe provide a sustainable and innovative solution to this rapidly changing market.