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Evolve ETFs CEO Lays Out The Bull Case For Investing In Esports, Cybersecurity

Spencer Israel

Which emerging industries should you be invested in? Cryptocurrency and blockchain? Cannabis? Automation?

All have their bulls and bears, but one Wall Street insider says there are two that stick out for having the strongest bull cases.

What To Know

Raj Lala, President and CEO of Canadian ETF issuer Evolve ETFs, appeared on Benzinga’s PreMarket Prep Thursday morning. Among the several emerging industries the firm has funds for, Lala said he is most bullish on two: esports and cybersecurity.

Lala said there are 2.2 billion gamers—someone who spends at least six hours a week playing a video game—in the world. And 11% of all viewership hours are directed towards gaming.

“It’s become a very different industry than where we were 10 years ago,” he said.

Amazingly, there are only three U.S. ETFs that offer exposure to this theme. Last month Evolve launched its ETF, the E-Gaming Index ETF (TSX: HERO) on the Toronto Stock Exchange.

Lala said he’s been encouraging investors seeking to invest in esports to do so via a fund rather than pick individual stocks to diversify away from single stock risk.

“Where a lot of advisors are starting to utilize a fund like this is as a single stock proxy. And the reason for that is the performance variance in our portfolio is over 100% in terms of the difference between the best and the worst. So if you’re picking an Activision Blizzard, Inc. (NASDAQ: ATVI) or an Electronic Arts Inc (NASDAQ: EA) or something like that, how do you know if you’re getting one of the ones at the top or if you’re going to end up with one that could be one of the worst-performing?”

As far as cybersecurity, Lala’s thesis is simple: unlike nearly every other expense, companies cannot simply decide to stop spending less on keeping their information secure.

“It would be the death knell for their business, and potentially career, to have a massive cyber breach for their firm. So in some ways, the market is somewhat recession-proof because spending continues to increase in it,” he said. “We all know that cybercrime is going to continue to increase and it’s going to increase rapidly, therefore the demand for cybersecurity services is going to follow suit.”

Why It’s Important

Lala noted that there are 20 billion devices connected online today, or about three per person on Earth. So it’s not as if cybersecurity will stop being a thing in 10 years. Plus, the theme has outperformed in recent years.

Evolve’s Cyber Security Index Fund (TSX:CYBR) has returned about 44% since inception in September 2017, thanks to outperformance in top holdings like Zscaler Inc (NASDAQ: ZS), Booz Allen Hamilton (NYSE: BAH) and Proofpoint Inc (NASDAQ: PFPT).

What’s Next

Here’s the upcoming earnings schedule for the biggest names in cybersecurity and esports:

Cybersecurity

  • Check Point Software Technologies (NASDAQ: CHKP) is expected to report earnings on July 24 before the opening bell
  • Proofpoint will report earnings July 25 after the closing bell
  • Booz Allen will report earnings July 29 before the opening bell
  • Fortinet will report earnings Aug. 1 after the closing bell
  • Cyberark will report earnings Aug. 7 before the opening bell

Esports

  • EA will report earnings July 30 after the closing bell
  • Take-Two Interactive (NASDAQ: TTWO) will report earnings Aug. 5 after the closing bell
  • Activision Blizzard will report earnings Aug. 8 after the closing bell

Listen to the full interview at 34:45 in the clip below.

PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google PlaySoundcloud, Stitcher and Tunein.

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