The goal of cybersecurity is to ensure the confidentiality, integrity and availability of data, both in transit and at rest. As data access points and applications have proliferated, security has become even more difficult to guarantee. Furthermore, attacks have only become more sophisticated and frequent. Several recent examples have highlighted the crippling effects such attacks can have. In the past 12 months, customer data was stolen at JP Morgan, private photos were stolen from Apple’s iCloud, and hundreds of millions of Target and Home Depot customers had their credit card numbers compromised. However, the most recent attack on Sony Pictures was perhaps the most devastating that any company has ever publicly suffered. Experts estimate that 11 terabytes of data were stolen, revealing information about employee compensation, scripts and unreleased movies, and conversations between high-level executives. The hackers, who are believed to be from North Korea, went so far as to threaten physical violence if Sony decided to release The Interview, a parody movie about an assassination plot on North Korea’s “Supreme Leader,” Kim Jong Un. Beyond the obvious financial losses, all of these companies suffered colossal blows to their reputations.

Bolstered by these recent headlines cybersecurity has quickly become a hot investable theme. Even before the Sony hack, cybersecurity spending was projected to jump about 40%, to $42 billion, by 2017, according to Bloomberg Intelligence. A new cybersecurity ETF (ticker: HACK) has been in existence for less than a month, and is already up significantly. There are several relatively new “pure-play” companies whose entire business centers on offering a cybersecurity software solution. However, we are wary of these companies’ high valuations (at more than 200x forward earnings!) and volatile stock prices. Instead, we have invested in cybersecurity through more established networking and content delivery companies that have built a portfolio of security offerings. For example, Cisco acquired SourceFire for $2.7 billion earlier this year as part of its security portfolio. Akamai bought Prolexic to add to its homegrown Kona security product. F5 Networks acquired Defense.Net, which provides cloud-based security services. We will continue to monitor the cybersecurity space and look for other potential investment opportunities.