Christian Magoon, CEO of Amplify ETFs, discusses how recent geopolitical tension and the proliferation of AI technology act as tailwinds for the cybersecurity theme. He also goes into detail on the various factors that have made Israel one of the world’s most innovative technology hubs.
Christian Magoon is CEO of Amplify ETFs, an ETF provider with a focus on growth, income and risk-managed strategies.
With over 25 years’ experience working with ETFs, Magoon previously founded ETF sponsor YieldShares, and has held positions in ETF product management at Claymore Securities and First Trust.
Magoon has launched over 70 ETFs in the US to date, and is an important figure in educating investors about the efficiency, transparency and flexibility of the ETF vehicle. His work in the space has led to him being called an ‘ETF pioneer’ by the Financial Times and Financial Planning Magazine. He is also a member of ‘The Experts’, the Wall Street Journal’s panel on wealth management.
Magoon holds a masters in communications and public relations from Wheaton College.
The New Cold War
The cybersecurity industry is expected to grow from $190.4bn in 2023 to $298.5bn in 2028, according to research from MarketsandMarkets published in January.
The drivers of this industry are unique. “It's a sector that doesn't really have any ups and downs”, says Magoon, as risks to businesses (and subsequent demand for cybersecurity products) exist regardless of the business cycle. In this respect, he says, it is both a growth theme, and a defensive one.
The theme is driven, in Magoon’s view, by geopolitical tension. “We’re in a cold war, in a lot of ways, with a lot of countries that have units willing to deploy cyberattacks.” For example, the US conducted a cyberattack against a suspected Iranian spy ship in mid-February.
“You can’t rule out that when a government starts to spend in areas like this, it really can move the markets.”
However, the theme is trending on a smaller scale too, with individual businesses increasingly becoming the targets of cyberattacks.
“We’re in a cold war, in a lot of ways.”
In Magoon’s view, the growing risk of cyberattack makes cybersecurity a C-suite issue for most companies. Boards are demanding increased spend on prevention, and the attacks that do happen incur further costs in their aftermath.
Finally, the ever-increasing amount of time spent online acts as a driver for cybersecurity.
“There’s so much more content, whether that’s banking information or ways we’re paying for things, even some of our personal information, photos, messages we’re sharing with people. More assets are online.” This attracts cybercriminals, and in turn drives retail spend on cybersecurity products to protect individuals.
“When you look at governments, corporations and individuals increasing their spending in any theme, that’s usually a good place to be for investors.”
The Automation Arms Race
The rapid development and proliferation of artificial intelligence (AI) technology will, in Magoon’s view, further fuel the cybersecurity industry.
“If you’re a bull on AI, you have to look at what technologies will be coupled with AI and grow right alongside of it,” he explains. He predicts that AI will lead to the development of new ways to attack computers, systems and software, while, on the flip side, ‘white hat’ engineers will adopt the technology to power the development of new solutions to these novel threats.
“There’s going to be an arms race,” says Magoon.
The proliferation of robotic technology and the increasing digitalisation of economies and societies provide further tailwinds to the theme.
“Whether you see the trend on AI, robotics or this interconnectedness — all of these areas mean that there are more vulnerabilities. Companies, governments and individuals are going to have to be more adept at security.”
In turn, these dynamics could, Magoon believes, lead to an increase in M&A activity within the space. Companies with the greatest access to capital will be best placed to secure other key resources, such as AI and quantum computing, as they scale to stay ahead of the developing cybersecurity threat.
“This kind of M&A activity often happens in industries when there’s a lot of demand and scale happening at the same time.”
An ITEQ Hub
Magoon’s attention to the interrelation of investing themes with global events and trends is exemplified in Amplify’s BlueStar Israel Technology ETF [ITEQ]. Having been launched in 2015, the fund was the first of its kind to target innovative companies in Israel’s technology industry.
Israel’s status as a tech hub stems, in Magoon’s view, from “the scrappiness and the survival nature” the country has had to develop. The arid climate has also forced Israel to be innovative in food production technology.
“There’s a real opportunity here to buy innovation at a discount. It’s very hard to do that right now in US markets.”
“Israel is known as the start-up nation. When you look at some of the unique aspects of Israel, you find that, as a nation, they spend more on R&D than any other nation relative to GDP.”
“The firewall was invented in Israel. Drip water irrigation was invented in Israel,” explains Magoon. The country is also a pioneer in autonomous driving technology. Magoon draws attention specifically to Mobileye [MBLY], which the ITEQ holds at a 0.7% weighting as of 29 February.
Recent geopolitical events have, in Magoon’s view, increased the appeal of ITEQ’s constituents.
“The judiciary conflict pushed down Israeli markets last year. Then right after that, the Hamas attack [did the same]. You're really buying these companies in this index at what we think is a depressed valuation, relative to its long-term track record.
“There’s a real opportunity here to buy innovation at a discount. It’s very hard to do that right now in US markets.”
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