- - Sunday, January 28, 2018

The right to defend yourself and your property applies in today’s increasingly connected world, just as it did more than 200 years ago. While the Second Amendment protects the right to keep and bear arms, the threats we face today are changing, just as the way we interact with people, data and content are changing. As individuals, companies and countries, we must be increasingly on guard and behaviors need to shift away from reactionary defense towards an always prepared and secure posture, much the way we’ve seen with homeland security and traditional national defense.

In 2015, for example, two researchers at the Black Hat conference hacked a 2014 Jeep Cherokee over the internet and paralyzed it on I-64, forcing Chrysler to recall 1.4 million vehicles. Hackers have found security flaws in smart home connectors that are used to turn up the thermostat, turn on your lights or access your Wi-Fi network through your smart fridge.

Cyber is global. In 2017, the WannaCry and Petya attacks reminded many of the growing threat of worldwide cyberattacks. We believe cybersecurity is an extraordinary growth market as individuals, companies and other institutions look to shore up their existing cyber defenses, assess attack and intrusion vulnerabilities and ward off future attacks.

CyberSecurity Ventures and other forecasters projected cybersecurity spending to balloon to $120 billion in 2017, up from $3.5 billion in 2004 — an increase of 35 times in 13 years. By 2021, CyberSecurity says worldwide spending on cybersecurity software, services and hardware services could “eclipse $1 trillion.” As one might expect, one of the fastest-growing segments of corporate consulting is cybersecurity advice, reaching $7.1 billion in 2016.

Key areas to watch in 2018:

• Cyber is only one aspect of security. As crucial as cybersecurity will be, it is still just one aspect of the far larger Safety & Security spending that occurs each and every year. Total global cybersecurity spending represented roughly 23 percent of the $522 billion 2017 U.S. defense budget. Candidate Trump pledged to rebuild the U.S. military and President Trump is looking to boost defense spending to $575 billion in 2018, a 10 percent increase from the last full-year budget in fiscal 2016 and about 9.5 percent more than the budget Congress approved for 2017. Aside from big-ticket items like military aircraft, ships and other marine vessels, the budget includes national security spending, weapons procurement as well as research and procurement.

• Outside the U.S. Rising global tensions have led to increasing demand for defense and military products in the Middle East, Eastern Europe, North Korea, the Far East and South China Seas. This is instigating increased defense spending globally, especially in the United Arab Emirates (UAE), Saudi Arabia, South Korea, Japan, India, China and Russia. For example, the Middle Eastern Homeland Security market is slated to grow at a CAGR of 15.5 percent to achieve $17.05 billion by 2021, up from $7.19 billion in 2015, driven by government initiatives to create a smart and secure environment amidst high terrorist activities in the region.

• Home security. With the media’s emphasis on cybersecurity (just Google “security” and see what comes up), attention is lost on other aspects of individual or personal security. The global home security solutions market — which includes video surveillance, electronic locks, alarms, access control, sensors, detectors and corresponding services — is predicted to reach $30.3 billion by 2022, up from $8.3 billion in 2014.

The increasing acceptance of video surveillance systems is expected to propel not only the video surveillance subsector, but also the data storage sector as the demand for IP-based video surveillance will increase due to its improved video-capturing quality. This growth is not just U.S.-based as the number of monitored alarm systems in Europe is forecasted to grow from 8.7 million in 2016 to reach 10.6 million in 2021, according to research by Berg Insight. In North America, the number of monitored alarm systems is forecasted to grow from 32.1 million at the end of 2016 to 37.1 million at the end of 2021.

• New threats, new solutions. Our Safety & Security investment theme is not only demand-driven as people, corporations and other entities spend on protecting and securing themselves, but is also ripe for change as industries evolve. The M&A activity in the defense contracting sector to purchase cyber firms as the “battlefield” increasingly expands into the digital world illustrates this rapid need for change. Another catalyst is the Internet of Things (IoT) and the increasing reality that even our own personal devices could be rendered useless or even dangerous through a cyberattack unleashed by a foreign government or other nefarious entity.

Lenore Hawkins is Tematica’s Chief Macro Strategist of Tematica Research and Chris Versace is the firm’s Chief Investment Officer. Tematica Research develops proprietary thematic investment strategies and delivers related content across custom indices, published research and model portfolios to both self-directed investors and institutional clients. The company’s Safety & Security investment theme taps into evolving needs across individual, cyber, corporate and homeland security, targeting companies that offer products and services ranging from corporate security and monitoring solutions, to firearms arms and home-security, to cybersecurity and national defense. Find us at https://www.tematicaresearch.com.

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