Semiconductors & Cybersecurity: Why Investing in These 2 Industries Could Help Your Portfolio Achieve High Growth

Nasdaq Global Index: Cybersecurity and Semiconductor

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Some people’s daydreams involve condo penthouses, flashy cars, and an enviable collection of Bored Ape Yacht Club NFTs. Mine, on the other hand, consist of spotting and investing in market trends right before they take off.

Hey, don’t laugh. Don’t we all wish we had snapped up vaccine stocks before Pfizer and Moderna “made a killing” from vaccine sales last year? Or invested heavily in e-commerce companies before the toilet paper and office chair gold rush of 2020?

COVID-19 has shown us that big changes in consumer behaviour (sometimes spurred by government mandates) can result in massive growth for some businesses even as others founder. Striking it rich on the stock market is more about identifying and investing in such trends early. Stock picking is out, thematic investing is in.

Wondering what the next macro trends are? Here are two industries that are also set on a growth trajectory in our post-pandemic world.

 

1. The semiconductor industry

Think about all the major tech trends in the world right now. Artificial intelligence and machine learning, blockchain technology, Web 3.0, Metaverse, autonomous vehicles, robotics, virtual reality, gaming, big data, and so on. It’s clear that exciting things are happening in the tech space.

If you want to be an early investor in the next internet revolution, though, there isn’t an obvious strategy. We don’t know which of today’s companies will succeed or fail. It could also be too risky (and complicated and expensive) to invest in them all.

A possible solution for investors looking to ride the next tech wave? Invest in the one thing that’s essential to almost all tech: semiconductors.

Semiconductors are the building blocks of all computing chips. They’re present in both high- and low-tech devices, from rice cookers, LED lights and bank ATMs, to the latest smartphones, gaming computers, wearable tech, and autonomous vehicles. In short, they’re everywhere in our tech-connected world and you’re probably holding it in your hand right now.

The semiconductor industry has already been solid for a number of years. With COVID-19 forcing us to go digital, it’s no surprise that the semiconductor industry has outperformed the S&P 500 index more than twice over.

But that’s only the beginning. With so many technological advancements on the horizon, we’re looking at potentially exponential growth in the coming years. In a 2019 report, the global semiconductor market is expected to grow at least five-fold from AI-related demand alone. Imagine what would happen when you add everything else, like blockchain and immersive gaming, to the mix.

Want to invest but don’t know your way around the semiconductor industry? You don’t have to if you’re looking at a broad-based index like Nasdaq’s PHLX Semiconductor Sector Index (SOX). It tracks the 30 largest US-listed semiconductor companies including giants like NVIDIA, AMD, Intel and Qualcomm.

SOX is one of the strongest performers in Nasdaq’s stable of thematic indices, coming up tops with its 1-year return of 20.6% and narrowly beaten only by a green energy index for its 3-year return of 173.8%. It also outperformed the generic US stock market index Nasdaq 100 for 1-, 3-, 5- and 10-year returns.

In summary, given the many tech advances on the horizon, the semiconductor industry has remarkably strong chances of growth in the coming years. And unlike newer fields such as clean energy or blockchain, semiconductors have a proven track record of performance. 

 

2. The cybersecurity industry

Like semiconductors, cybersecurity isn’t the stuff of casual watercooler conversations. (Yeah, try telling that to your company’s PDPA officer.) 

Nonetheless, it’s a huge part of our lives today. In Singapore alone, there have been over 900 phishing scams since the start of the year, including the notorious OCBC phishing scams. Despite the Singapore Police Force’s constant warnings to be vigilant, we somehow keep getting fooled! How embarrassing for a supposedly Smart Nation.

Well, it turns out that the prevalence of cybercrime is not entirely because we’re stupid or greedy. It’s also because cybercrime has turned into organised crime.

Gone are the days of hoodie-wearing computer nerds working alone. According to a Nasdaq report, cybercrime is so huge today that Ransomware-as-a-Service (RaaS) is now a thing! These evil tech companies provide readymade cybercrime software available on a subscription basis, allowing “less skilled and less well funded criminal actors to participate” in the lucrative business of ransoming stolen data.

This chilling reality means that businesses today have no choice but to invest in cybersecurity to protect their users and data. Almost two-thirds of chief execs planned to increase their companies’ spending on cybersecurity, according to a poll by research firm Gartner. The global cybersecurity market is, therefore, a growing one. Last valued at US$153b in 2020, it’s projected to grow 12% annually to US$366b in 2028.

If you’re looking to capitalise on the growth of the cybersecurity sector, Nasdaq has two indices that make things a whole lot easier: Nasdaq CTA Cybersecurity Index (NQCYBR) and Nasdaq ISE Cyber Security Index (HXR), which track publicly-listed companies in the business of building and maintaining cybersecurity protocols across a wide range of sectors. Major players represented here include Juniper Networks, Fortinet and Palo Alto Networks.

In some ways, cybersecurity is the dark twin of semiconductors as it also rides the tech wave. The proliferation of technologies and new devices is likely to result in higher demand for cybersecurity as our vulnerability increases along with our usage of tech.

 

How to invest in Nasdaq’s thematic ETFs

While you can’t invest in the Nasdaq indices mentioned above directly, there are existing ETFs and mutual funds that are based on the indices, listed on these pages:

Those listed as “funds” are unit trusts or mutual funds; speak to your asset manager, investment broker or bank to request access.

Meanwhile, those listed as “ETFs” can be bought through an investment broker that allows access to that market. Looking at the lists, the easiest ETFs to invest in are Invesco PHLX Semiconductor ETF (SOXQ) and First Trust Nasdaq Cybersecurity ETF (CIBR), which are both available on the US stock market.

Find out more about the Nasdaq Global Index.