APRIL/MAYVOLUME 01 NUMBER 04

IGITALORTUNES

PG. 05HACKERS’ (AND INVESTORS‘) DELIGHT

PG. 02THE ULTIMATE ASSAULT AGAINST CYBER THUGS

PG. 06THIS MASSIVE TECH TREND

IS GOING NOWHERE WITHOUT PROPER SECURITY

DIGITAL FORTUNES TEAM

Louis Basenese CHIEF TECHNOLOGY ANALYST

Greg Miller SENIOR TECHNOLOGY ANALYST

EXECUTIVE COMMITTEE

Robert Williams PUBLISHER, FOUNDER

Jay Livingston ASSOCIATE PUBLISHER

Justin Fritz EXECUTIVE EDITOR

Martin Denholm EDITOR-IN-CHIEF, TECHNOLOGY

Marie Haughey COPY CHIEF

APRIL/MAY VOL. 01 | NO. 04

CYBER SECURITY

2

The statistics are shocking...

Since 2009, global cyber attacks have grown at a compound annual rate of 66%, based on PricewaterhouseCoopers’ (PWC) 2015 Global State of Information Security Survey.

Every month, we read about yet another company falling victim to a cyber attack.

Sony. Target. JPMorgan Chase. Staples. Anthem. The list goes on.

And the headlines don’t even tell the full story. Attacks on corporations actually occur much more frequently. It’s just that the household names garner all the press. Consider:

In 2014, there were a record 783 unique cyber breaches, which compromised over 80 million individual records, according to the Identity Theft Resource Center. That’s roughly 15 breaches per week.

Are these companies woefully unprepared and extremely vulnerable?

That’s part of it.

For too long, they’ve been

complacent, adopting an “it won’t happen to us” attitude. Then it does.

But attacks are also on the rise because we’re almost completely immersed in the Digital Age. Nearly 90% of business assets today are digital. Every time we access Wi-Fi to check email, surf the web, make a purchase, or tweet, it creates data. It also represents another possible point of attack, and puts our security and sensitive information at risk of being stolen.

If that’s not ominous enough, the U.S. Government Accountability Office also just warned that there’s

a growing threat of in-flight Wi-Fi being hacked to access flight controls. Cyber security experts have said hackers could breach firewalls that protect avionics if the flight control system and in-flight entertainment systems use the same routers and wiring.

Stifel Nicolaus Analyst, Gur Talpaz, sums up the situation perfectly: “Cyber security is criminally underinvested in. Meanwhile, the threat environment is increasing.”

Indeed! And it’s time we position our portfolios to profit from the situation. So let’s get to it…

Dear Reader,

THE ULTIMATE ASSAULT

AGAINST CYBER THUGSby LOUIS BASENESE

GLOBAL CYBER ATTACKS ARE SOARING(In millions)

2009 2010 2011 2012 2013 2014

3.49.4

22.724.9

28.9

42.8

SOURCE: PricewaterhouseCoopers

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CYBER SECURITY

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NO CRYSTAL BALL REQUIREDIf 2014 was the year of high-profile cyber attacks, 2015 is destined to be the first year of massive investment aimed at beefing up defenses. Why?

Because the cyber barrage put every firm on notice: Consider yourself a target. And the last thing a CEO wants to see is his company’s name plastered on the front of The Wall Street Journal for being the latest

victim of a cyber assault. At this point, there’s really no excuse. Being unprepared is grounds for termination.

It’s well worth being proactive, too, since the cost of prevention is much cheaper than the cost of remediation.

THE COST OF A HACK ATTACKNowadays, the average cyber attack costs a U.S. company $12.7 million – up almost 10% from a year ago. On the high end, a single attack can cost upwards of $60 million, according to the Ponemon Institute.

These expenses include the cost of detecting, investigating, and managing a response to the attack, as well as the loss of customers. They also include disruption to business, considering that the average time to resolve a cyber attack is 45 days.

Then you need to tack on the costs of lawsuits and settlements. Like the $20 million that Target is reportedly paying MasterCard in the aftermath of its massive data breach two years ago. During the 2013 holiday shopping season, Target revealed that hackers had gained access to at least 40 million Americans’ credit card numbers through its system.

With this in mind, venture capitalist Fred Wilson of Union Square Ventures predicts, “Cyber security budgets will explode in 2015 as every company, institution, and government attempts to avoid being [the next victim].”

More specifically, tech research firm,

Gartner, expects information security spending to grow more than three times faster than overall information-technology spending (8.2% versus 2.4%). In dollar terms, we’re talking about $77-billion worth of spending in 2015 alone.

If we focus on the retail sector, which tends to garner the most headlines, Forrester predicts, “Budgets will increase by double digits in 2015.”

This isn’t a one-off spending spree, either.

THE NEVER-ENDING THREAT“Without a doubt, 2015 will see more massive takedowns, hacks, and exposure of sensitive personal information like we’ve witnessed in years past.”

So says Adam Levin, Founder and Chairman of IDT911.

But the truth is, it’s not just 2015. In today’s digital age, companies will be forced to spend more on cyber security year after year.

“Some investors have compared [cyber security] to a Y2K-like spending situation,” says Daniel Ives, Senior Analyst at FBR Capital Markets. “But the difference here is that it’s a Y2K that doesn’t end.”

Never-ending? Sounds like the ideal investment situation, doesn’t it? There’s just one problem…

According to Glenn Solomon, Managing Partner, GGV Capital, “While the cyber security industry is poised to create some huge winners,

Date Company Records Exposed

12/19/13 Target 110,000,000

1/1/14 Neiman Marcus 1,100,000

1/25/14 Michaels 2,600,000

2/6/14 Home Depot 20,000

3/14/14 Sally Beauty Supply 25,000

4/17/14 Aaron Brothers 400,000

4/22/14 Iowa State University 48,729

5/30/14 Home Depot 30,000

7/22/14 Goodwill Industries 868,000

8/18/14Community

Health Systems

4,500,000

8/21/14 United Parcel Service 105,000

8/28/14 JPMorgan Chase 1,000,000

9/2/14 Home Depot 56,000,000

9/2/14 TripAdvisor 880,000

9/25/14 Central Dermatology 76,258

11/7/14 Home Depot 53,000,000

11/10/14 U.S. Postal Service 800,000

11/18/14 Staples 1,200,000

CYBER THUGS ARE HAMMERING CORPORATE AMERICA

APRIL/MAY VOL. 01 | NO. 04

CYBER SECURITY

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it’s important to note that there will never be a perfect solution. No company can hope to completely wipe out all cyber crime. The best one can do is to try to stay on par with, or a bit ahead of, the hackers. As such, the best companies won’t build products for a point in time, but will focus on continuous innovation.”

Solomon should know, too. His firm invests in the leading private companies in the space, where the best cyber security defenses constantly evolve and change. Consequently, there’s no one solution – or, more specifically, a single, no-brainer company – that we can invest in to easily profit from the boom. There’s simply too much risk involved.

What we can do, though, is pick the one with the highest probability of success – the PureFunds ISE Cyber Security ETF (HACK).

THE ULTIMATE “PROFIT FROM FEAR” INVESTMENTLaunched in November 2014, the ETF consists of 30 leading cyber security companies that focus on infrastructure, software, and services.

Initially, pundits worried that such a narrow focus might prevent the fund from attracting a critical mass

of assets. But I’ve tracked its progress – and that was definitely a misplaced concern.

Within six weeks, HACK topped $100 million in assets under management (AUM). Within three months, AUM climbed above $200 million. Now, six months later, AUM stands at over $530 million.

Over that time, the ETF has handily outperformed the S&P 500 and

CYBER SECURITY PAYSCyber Security ETF Thrashing Major Indexes

20%

15%

10%

5%

0%

-5%Dec ’14 Feb ‘15 Apr ‘15

15.08%

6.43%

2.85%

PureFunds ISE Cyber Security ETF

Nasdaq Composite

S&P 500

Want to Pick the Perfect PASSWORD?To put it bluntly, we’re terrible at picking decent passwords. Ones that are too easy to guess account for roughly 30% of all data breaches. So pick your passwords wisely!

SOURCE: GadgetsAndGizmos.org

LENGTH

6 characters

7 characters

8 characters

9 characters

ALL LOWERCASE

10 minutes

4 hours

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4 months

+UPPERCASE

10 hours

23 days

3 years

178 years

+NUMBERS & SYMBOLS

18 days

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463 years

44,530 years

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Nasdaq, too, rising by 15%.

Note: This outperformance isn’t simply being driven by fear of additional cyber attacks. Rather, it’s coming from steadily increasing demand. Consider the fourth-quarter results of some of the companies included in the fund...

• Proofpoint, Inc. (PFPT) – sales up 37%.

• Palo Alto Networks, Inc. (PANW) – sales up 54%.

• CyberArk (CYBR) – sales up 81%, with profits soaring by 377%.

• FireEye (FEYE) – sales up 150%.

All these companies are among the ETF’s top 10 holdings. That means we’re guaranteed to own a stake in the market’s fastest-growing, most successful cyber security companies.

And since all these firms are preparing to report first-quarter

results, too, the stage is set for even more chart-topping growth and appreciation.

What’s more, because the ETF is rebalanced semi-annually (June and December), we’ll also never miss out on any new cyber security leaders. Any time

a promising company hits the scene – and meets the eligibility requirements, including a minimum market cap of $100 million – it’ll automatically be added to the fund.

Ultimately, the ETF gives us a low-risk, low-hassle way to profit from an increasingly critical area of the market. Dynamically and cheaply, too. The fund’s expense ratio checks in at 0.75%.

Action to Take: Buy the PureFunds ISE Cyber Security ETF (HACK) at market. Use a 25% trailing stop to protect your profits and principal. DF

WE’RE GUARANTEED TO OWN A STAKE IN THE MARKET’S FASTEST-GROWING, MOST SUCCESSFUL CYBER SECURITY COMPANIES.

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HACKERS’ (AND INVESTORS’) DELIGHTAccording to IBM, 90% of the world’s data was created in the last two years alone. How’s that possible? Because we create an astonishing 2.5 quintillion (2.5 followed by 18 zeros) bytes of data every day.

To put that into perspective, it’s the equivalent of downloading over 500 million HD movies – which would require 57.5 billion iPads with 32-gigabytes of storage to house them all!

All this data is a hacker’s delight. And they’re having a field day, as evidenced by the growing number of high-profile breaches. But it’s an investor’s delight, too. Because as more companies get hacked, the more it drives up demand for cyber security services offered by the companies in the PureFunds ISE Cyber Security ETF.

APRIL/MAY VOL. 01 | NO. 04

INTERNET OF THINGS

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New technologies and innovations are as fascinating as they are life-changing.

But to really profit from new opportunities that arise, it’s crucial to understand how trends work together.

For example, the Big Data trend is undoubtedly one of today’s biggest tech trends.

But as Louis outlined in his article, with an incredible amount of digital data being generated these days, it’s critical that we’re able to secure it.

As a result, cyber security becomes even more critical as data growth continues to soar. Not to mention more lucrative.

And yet, another trend – with links to Big Data and cyber security – is becoming just as explosive: the Internet of Things (IoT)…

THE NEXT STEP IN THE INTERNET’S EVOLUTIONSimply put, the IoT is the idea that everything that can be connected to the internet will be connected. In the process, the aim is to make our lives

easier, more convenient, and even safer.

For example, our security systems will be connected… highway lighting systems… medical devices like pacemakers… the list goes on.

But will everything be secure?

The IoT, Big Data, and cyber security are three tech trends that are inextricably linked.

Together they’ll improve consumer products and services, boost our understanding of the world, enhance our lives… and make savvy investors a lot of money.

You may have seen IBM’s current television commercial that mentions the IoT, and how it’s set to change the way we live and work. It’s true.

The internet’s low cost and ubiquity allow many more things to be connected. How many more?

Gartner estimates that at the end of 2014, 3.75 billion “things” were connected to the internet.

And that doesn’t even include computers and smartphones!

By 2020, Gartner projects that 25 billion things will be connected. What

does this mean for you?

MAKING THE WORLD A SMARTER, BETTER PLACELet’s take an inventory of the things that’ll be connected by the end of the decade…

Your lawn mower… your washer and dryer… your heating, air conditioning, and lighting systems. Even your garden hose.

And what about our cars? If you read our February issue and regular Wall Street Daily content, you’ll know that life-changing technological advancements in the auto industry (driverless cars and connected cars) is one of the major growth trends that we’re focusing on.

Sure enough, Gartner foresees 250 million connected cars in just five years.

It’s the same story in the commercial and government worlds.

Now, imagine railroad crossings that can alert operators when a gate malfunctions, or a warning light goes out. Trains using that crossing will all

THIS MASSIVE TECH TREND IS GOING NOWHERE WITHOUT PROPER SECURITY

by GREG MILLER

APRIL/MAY VOL. 01 | NO. 04

INTERNET OF THINGS

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NAME SYMBOL OPEN DATE OPEN PRICE CURRENT PRICE RATING STOP PRICE GAIN RISK COMMENTS

Adept Technology ADEP 03/15 $6.48 $6.08 BUY N/A -6.13% ★ ★ ★ Convergence of mobile and task-handling robots

Global Robotics & Automation Index ROBO 01/15 $25.00 $27.47 BUY $20.00 9.88% ★ Robotics/automation mega trend

Mattersight MATR 03/15 $6.36 $6.54 BUY N/A 2.83% ★ ★ ★ Big Data/predictive analytics

Mobileye N.V. MBLY 02/15 $36.17 $46.64 BUY $32.57 28.96% ★ ★ ★ Self-driving cars mega trend

NVIDIA Corp. NVDA 02/15 $22.33 $22.63 BUY $17.44 1.72% ★ ★ Buy for PCs and tablets, get autos for free

PureFunds ISE Cyber Security ETF HACK 04/15 NEW BUY NEW ★

Cyber security plus Big Data and Internet of Things

DIGITAL FORTUNES PORTFOLIO

NEW

Prices as of 4/15/2015 | H Moderate Risk, HH High Risk, HHH Highest Risk (for aggressive speculators only) Note: All buy prices and gains have been adjusted for income. For the absolute latest updates on the portfolio, visit our website at www.wallstreetdaily.com.

be networked, so they’ll “know” when to slow down and save fuel if there’s a bottleneck further ahead.

Now, that Gartner prediction – 25 billion things connected by 2020 – represents a 35% annual growth rate. And it could be even higher than that.

There’s just one force holding it back: security.

PREVENTING A HACK ATTACKWith massive projections for the IoT, it’s even more critical that there’s adequate security to safeguard all the things that will be connected.

Potential security breaches can occur at three main levels…

• The device level.

• While the data is in transit to its eventual home.

• At that data home itself (often part of the “cloud”).

In the other direction, things can be instructed to execute incorrect commands by malicious people or faulty machines. CONTINUED ON NEXT PAGE...

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Now, it’s unlikely that someone will want to hack your coffeemaker. But a municipal water system might make a tempting target for terrorists, political activists, or even just someone angry at the utility company.

So with all these things connected, it’s absolutely critical that adequate security is in place. There can be no compromise here. While some applications will be so sensitive that they’ll never touch the wider internet, most of them will. And most will connect to the internet wirelessly. So let’s consider those three levels…

Devices: The amount of security required will be a balancing act. After all, the more robust the security, the more money it costs. So how sensitive is the application or data? How likely is it that someone will want to hack into the machine or data? What are the implications of a security breach?

Transit: Fortunately, most of this area is already well understood. It’s relatively easy to encrypt internet data in a way that makes security breaches very difficult, even for government-level cryptographers. However, “touch points” – where data enters and exits the internet

– need to be beefed up. It was one of these “touch points” that Lenovo (LNVGY) and Superfish breached when they installed tracking programs on Lenovo computers. It’s also how the data breach at Home Depot (HD) occurred.

The Data Home: Large databases are very tempting targets for industrial espionage, identity thieves, and other cyber attackers. While this area is also well understood, the bad guys are experts in it, too. Even huge, security-conscious companies like Apple (AAPL) are vulnerable when they’re on the wrong side of the cyber war between hackers and security experts.

Finally, there’s the voluntary sharing of information. For example, your doctor might need to share your pertinent health data with your insurance company, a hospital, a clinic, etc.

Deciding what data gets fully shared, “anonymized” first, or shouldn’t be shared at all is a huge task. Not to mention, sorting which recipients have

their own sufficient privacy and security protocols. It’s an issue that will only become more complex as data usage continues to soar and data recipients become more diverse.

As Louis mentioned, the companies in the PureFunds ISE Cyber Security ETF (HACK) are all working on security and privacy solutions for today – and the future when the IoT truly gets underway.

With so much security needed, and so many levels of security required for different applications, it’s all but impossible for only two or three companies to emerge as “the” security companies to invest in.

After all, the expertise required to protect a huge database in the cloud is very different from the expertise needed that allows companies to monitor and control their machines remotely.

Which is precisely why we’re investing in the ETF this month. We gain pure-play exposure to this critical area, but with important diversification, too. DF

WITH ALL THESE THINGS CONNECTED, IT’S ABSOLUTELY CRITICAL THAT ADEQUATE SECURITY IS IN PLACE.

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