June 12, 2019

We’re presently in the midst of the fourth industrial revolution, or “Industry 4.0”. Essentially, it involves the meeting of the physical and digital in a way that is significantly transforming our world.

Investors interested in this highly compelling technological shift can gain exposure to it via the Horizons Industry 4.0 Index ETF (“FOUR”). It provides exposure to companies involved in five areas of technology: cloud & big data, advanced robotics, augmented reality & 3D printing, the internet of things (“IoT”) and cyber security.

While cyber security may be the least “sexy” of the five, its importance cannot be overstated. In fact, as the other four pockets continue to grow in importance, cyber security must grow with them

Mobile security is lacking on a level that is shocking, and thus represents a current preferred target for cyber criminals. The need for mobile antivirus software has not dawned on most mobile users despite the fact that our phones often know our location, have a camera and microphone, and 61% of us do mobile banking on them1. According to Statista, it is projected that IoT-connected devices will grow to 75.4 billion worldwide by 2025 – five times the amount from 20152. We are looking at tens of billions of devices that are being designed and manufactured with security as an afterthought. That’s not good news. 

Does this mean someone will hack your toaster to burn your toast? While that may be a fun prank to pull for some, what is more likely is that they will use your toaster (or refrigerator or car) as an entry point to gain access to your digital network, thereby compromising your personal data and possibly much more (e.g. disarming your alarm system or gathering other sensitive information).

Shockingly, some of the biggest companies in the world (and ironically some of the heavyweights of technology) are facing threats. Last year alone, 52.5 million Google+ users’ data was compromised3. Facebook was breached for names, phone numbers and email addresses for close to 29 million users4. Quora was breached for data on 100 million users5. Twitter revealed a data breach that affected 330 million users6. Amazingly, some companies had no idea they experienced breaches until years later. For instance, Marriott revealed a breach of 500 million guest and client accounts and when investigated, the company found that successful breaches had been occurring for up to four years before they were discovered7.

Recent reports show that USD $ 600 billion is being lost to cybercrime globally due to hacking methods such as ransomware attacks and malware viruses that identify and scrape personal data.8 Unfortunately, the costs are growing significantly each year as anonymizing services like "TOR" (a free software product that enables anonymous and untraceable internet activity) and the dark web help to "give cybercriminals both an arsenal and a sanctuary".8 As mobile usage expands rapidly, and IoT devices proliferate, the pool of nefarious opportunity expands. Cybercrime requires fewer computer skills than ever and as a result it will likely flourish for the foreseeable future.

If the biggest companies in the world are falling victim, should we just give up and succumb to all the ‘Dr. Cyber Evils’? No, but you can absolutely bet that having proper cyber security protocols in place will soon be as mandatory as having basic insurance. At the moment, 7 out of 10 companies are not ready for a cyber-attack9. According to IBM Cyber Resiliency Group, 77% of organisations don’t have an adequate cyber-attack plan at all10. This year, the company Norsk Hydro was brought to its knees by ransomware that encrypted their data and paralyzed many physical processes11. Remember, as more of our world “goes online”, there will be more opportunities for hackers and not just in the cyber realm. Could someone theoretically hack into an autonomous vehicle and send the passengers to a remote location to be held for ransom? Why not? Industry 4.0 is about the unprecedented melding of the digital with the physical – but we had better be aware of all the implications.

The wake-up calls are multiplying quickly. Less than 10% of IT budgets in small and medium-sized enterprises are allocated to cyber security12. That is nowhere near enough. Companies will need to get with the program.

As cyber security budgets increase, companies that are involved in security consultancy, security protocol implementation and security software should see earnings expand. In my opinion, this area will become a must-have focus for companies as pressures to improve security arise from both private and public sectors. For example, since November 1, 2018, investment companies must now disclose data breaches under Canada's Personal Information Protection and Electronic Documents Act, under potential penalty of significant fines for each account affected13. The associated opportunity for investors is vast. FOUR is designed to provide them with exposure to the cyber security space.

Think you already have this exposure by owning the Nasdaq 100 Index? Barely. Symantec, likely the most important name in mobile security, currently accounts for only a 0.156% weighting in the Index, near the bottom of all holdings. Palo Alto Networks and Fortinet, among the leaders in cloud security, are not even in QQQ (an ETF that tracks the Nasdaq 100 Index). Palo Alto Networks has been growing revenue at multiples of the rates of some of its peers, and now is focussing efforts on the next phase of effective security – one that uses artificial intelligence14. One of FOUR’s top mobile security performers in 2019, Zscaler, isn’t in QQQ either.

FOUR holds seven of the top 25 cyber security names, as named by The Software Report in December 201815. Think you’re exposed to this important space with a QQQ holding? Yes. But is it enough? This is one of the reasons that we consider FOUR as a perfect complement to holders of QQQ as it hones in on the most cutting-edge Industry 4.0 innovation, growth, and importantly… security to protect it all.

1Source: ‘8 reasons why smartphones are privacy nightmare’, TechRadar Pro, March 6, 2018.
2Source: ‘Internet of Things (IoT) connected devised installed base worldwide from 2015 to 2025 (in billions)’, Statista, 2019.
3Source: ‘Another Google+ data bug exposes info for 52.5 million users’, Engaget, December 12, 2018.
4Source: ‘Facebook now knows how many users were hacked last month: 29 million’, Vox, October 13, 2018.
5Source: ‘100 Million Quora Accounts Hacked: What to Do’, Toms Guide, December 3, 2018.
6Source: ‘Twitter bug causes passwords to be stores in plain text – go change your password now’, Global News, May 5, 2018.
7Source: ‘Marriot discloses massive data breach affecting up to 500 million guests’, The Washington Post, November 30, 2018.
8Source: ‘Economic Impact of Cybercrime – No Slowing Down’, McAfee, February, 2018.
9Source: ‘How Can 73 Percent of Companies Not Be Prepared for Hackers’,, February 22, 2018.
10Source: ‘IBM Study: More Than Half Organizations with Cybersecurity Incident Response Plains Fail to Test Them’, IBM, April 11, 2019.
11Source: ‘Norsk Hydro Calls Ransomware Attack ‘Severe’’, ThreatPost, March 19, 2019.
12Source: ‘Cybersecurity in Enterprise’, Int Tech Solutions, February 13, 2019.
13Source: ‘Cybersecurity breaches should put financial professionals on alert’, The Globe and Mail, February 21, 2019.
14 Source: ‘Palo Alto Networks’ Results Accelerated During Its Second Quarter’, The Motley Fool, March 5, 2019.
15 Source: 'Top 25 Cybersecurity Companies of 2018', The Software Report.

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

Share This Article

Next article

2019 ETHI Rebalance: Investing in Socially Responsible Companies

This website uses cookies to ensure we give you the best experience. By continuing to browse the site, you are agreeing to our use of cookies. Click here to read our privacy policy.

Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the "Horizons Exchange Traded Products"). The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. Please read the relevant prospectus before investing.

The Horizons Exchange Traded Products include our BetaPro products (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds, and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in shares of a BetaPro Product decreases in value. The BetaPro Products consist of our Daily Bull and Daily Bear ETFs (“Leveraged and Inverse Leveraged ETFs”), Inverse ETFs (“Inverse ETFs”) and our BetaPro S&P 500 VIX Short-Term Futures™ ETF (the “VIX ETF”). Included in the Leveraged and Inverse Leveraged ETFs and the Inverse ETFs are the BetaPro Marijuana Companies 2x Daily Bull ETF (“HMJU”) and BetaPro Marijuana Companies Inverse ETF (“HMJI”), which track the North American MOC Marijuana Index (NTR) and North American MOC Marijuana Index (TR), respectively. The Leveraged and Inverse Leveraged ETFs and certain other BetaPro Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These BetaPro Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, among other risks, which are described in their respective prospectuses. Each Leveraged and Inverse Leveraged ETF seeks a return, before fees and expenses, that is either up to, or equal to, either 200% or –200% of the performance of a specified underlying index, commodity futures index or benchmark (the “Target”) for a single day. Each Inverse ETF seeks a return that is –100% of the performance of its Target. Due to the compounding of daily returns a Leveraged and Inverse Leveraged ETF’s or Inverse ETF’s returns over periods other than one day will likely differ in amount and, particularly in the case of the Leveraged and Inverse Leveraged ETFs, possibly direction from the performance of their respective Target(s) for the same period. For certain Leveraged and Inverse Leveraged ETFs that seek up to 200% or up to or -200% leveraged exposure, the Manager anticipates, under normal market conditions, managing the leverage ratio as close to two times (200%) as practicable however, the Manager may, at its sole discretion, change the leverage ratio based on its assessment of the current market conditions and negotiations with the respective ETF’s counterparties at that time. Hedging costs charged to BetaPro Products reduce the value of the forward price payable to that ETF. Due to the high cost of borrowing the securities of marijuana companies in particular, the hedging costs charged to HMJI are expected to be material and are expected to materially reduce the returns of HMJI to unitholders and materially impair the ability of HMJI to meet its investment objectives. Currently, the manager expects the hedging costs to be charged to HMJI and borne by unitholders will be between 10.00% and 45.00% per annum of the aggregate notional exposure of HMJI’s forward documents. The hedging costs may increase above this range. The manager publishes on its website, the updated monthly fixed hedging cost for HMJI for the upcoming month as negotiated with the counterparty to the forward documents, based on the then current market conditions. The VIX ETF, which is a 1x ETF, as described in the prospectus, is a speculative investment tool that is not a conventional investment. The VIX ETF’s Target is highly volatile. As a result, the VIX ETF is not intended as a stand-alone long-term investment. Historically, the VIX ETF’s Target has tended to revert to a historical mean. As a result, the performance of the VIX ETF’s Target is expected to be negative over the longer term and neither the VIX ETF nor its target is expected to have positive long-term performance. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

Horizons Total Return Index ETFs (“Horizons TRI ETFs”) are generally index-tracking ETFs that use an innovative investment structure known as a Total Return Swap to deliver index returns in a low-cost and tax-efficient manner. Unlike a physical replication ETF that typically purchases the securities found in the relevant index in the same proportions as the index, most Horizons TRI ETFs use a synthetic structure that never buys the securities of an index directly. Instead, the ETF receives the total return of the index through entering into a Total Return Swap agreement with one or more counterparties, typically large financial institutions, which will provide the ETF with the total return of the index in exchange for the interest earned on the cash held by the ETF. Any distributions which are paid by the index constituents are reflected automatically in the net asset value (NAV) of the ETF. As a result, the Horizons TRI ETF receives the total return of the index (before fees), which is reflected in the ETF’s share price, and investors are not expected to receive any taxable distributions. Certain Horizons TRI ETFs use physical replication instead of a total return swap. The Horizons Cash Maximizer ETF and Horizons USD Cash Maximizer ETF do not track an index but rather a compounding rate of interest paid on a cash deposit that can change over time.

*The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The rates of return shown in the table are not intended to reflect future values of the ETF or returns on investment in the ETF. Only the returns for periods of one year or greater are annualized returns.