PureFunds CEO Andrew Chanin On Investing In Cyber Security

An investor who wanted to take a tactical approach to investing in cyber security has two options - buy individual stocks – or check out a company like PureFunds.

PureFunds offers the only pure-play exchange-traded fund in the cyber security sector.

PureFunds CEO, Andrew Chanin, spoke with Benzinga about the PureFunds ISE Cyber Security ETF HACK and how it serves the needs of investors interested in that sector.

Related: Will Fortinet's Earnings Show What Other Cybersecurity Stocks Will Look Like?

Benzinga:  How did the idea for PureFunds come about?

Andrew Chanin:  The company was founded in 2010. (Before that) I worked on the floor of the American Stock Exchange for The Kellogg Group.

I had the opportunity to start an ETF prop trading desk at another firm where one of my partners and I gave a bunch of ETF ideas to issuers. Eventually they said, "Why do you keep giving us your ideas? Why don't you try launching your own?"

Sure enough, in 2012, we launched our PureFunds ISE Junior Silver ETF SILJ. In November 2014, we launched our PureFunds ISE Cyber Security ETF HACK.

BEN:  What’s the overall philosophy of PureFunds?

AC:  We're a smaller company, but believe there are key areas in the ETF space that haven't been made accessible.

So, all of our concepts have tended to be first mover ideas.

We began in natural resources and are now making a move into the technology space.

BEN:  What makes cyber security an attractive standalone investment?

AC: Cyber security has been growing regularly since its formation, back with companies like Norton and McAfee.

Although cyber security was always a risk, ever since computers came about, recently, entire companies have fallen victim, as well as governments, to massive, costly cyber-attacks.

The U.S. Federal Government spent less than $1 billion on cyber security in 2000. For 2015 that number is $15billion.

BEN:  What are some of the holdings in PureFund’s cyber security ETF?

AC: FireEye is one of the ones many people seem to know. When Sony was breached, (FireEye) was one of the first companies that got a contract from Sony. When Anthem was breached, same thing.

Another company is CheckPoint. They've been making some smaller strategic acquisitions in the cyber security space. Lately they've mentioned that one of the big pushes they're looking at is mobile.

BEN:  What about the construction of the cyber security ETF makes it unique?

AC: This is the first and only pure-play cyber security ETF. We've recently cross-listed it in Mexico as well. It's unique in that it's the first ETF that gives pure-play exposure to the cyber security industry.

That's important because people recognized the cyber security industry was one poised for growth due to increased spending, increased fear, increased duress.

However, being a growth industry typically comes with high volatility. If you look at some of these names on an individual basis, you can see extreme volatility.

The more volatile an industry is, I almost think, it's even more important to diversify yourself within that industry.

By developing an ETF that allows for diversification of global cyber security companies, individuals are getting diversification and lowering their individual company risk.

JP: How do you select companies to be included in the ETF?

AC: That's done by our index provider, the International Securities Exchange.

Essentially, they build a pool and pull in companies that have revenues derived from cyber security businesses.

Within that, they do liquidity screening. One of the goals is to find those companies that are pure-play cyber security companies.

You might have a company like Intel, which owns a cyber security name; however, as far as a percentage of revenues, cyber security is maybe five percent of their entire business.

Related: 5 Junior Stocks Poised To Swing Higher

BEN:  Finally, what does a cross section of your investor base look like?

AC: I don't know the age demographic, but it's a great mix of retail and institutional.

Model portfolio strategists look at it and say, "OK, I've got tech exposure, but I really do like this (cyber security) area."

Investors who use a tactical kind of shift in their portfolio find that (ETF) fits for them. An individual who is trying to play different growth sectors finds it difficult and pricy to pick individual stocks.

This is an easy way to get that exposure.

At the time of this writing, Jim Probasco  had no position in any mentioned securities.