Five to follow: security star reveals major themes
by Chris Sloley on Dec 12, 2012 at 07:01
Credit Suisse manager Patrick Kolb identifies the key trends to watch across the security sector and how to play them.
Security investment specialist Patrick Kolb, who runs the $60 million Credit Suisse (Lux) Global Security fund, has set out five of the major themes he expects to drive the sector in the coming year and beyond.
Over three years to the end of November 2012, the CS (Lux) Global Security fund has returned 36.5% in US dollar terms. This compares to its Citywire benchmark, the MSCI World TR USD, which rose 24.2% over the same period.
The first theme the Citywire A-rated manager is keeping a close eye on is secular and emerging market growth. Operating a secular strategy, Kolb said that while he is less affected by macro moves, he is aware of the rampant opportunities in the emerging world.
He believes there is potential being created by increase internet and computer users, as well as developed world players taking market share in the emerging world.
‘We do have indirect exposure to the emerging markets. For example, we have Prosegur, which is a Spanish guarding company. It is getting over 70% of its EBIT from Latin America. It is an interesting company which is benefiting from the growth potential in Latin America.’
Describing Prosegur as a ‘boring’ but solid stock, the Zurich-based manager said it is proving to operate an effective global growth strategy.
Transportation is Kolb’s third largest allocation by sector, accounting for 17% of the fund. In this area, Kolb said continued anti-terrorism methods are providing strong opportunities for investment.
‘This is an interesting development because a lot of governments, like the US, as well as in Europe and Asia, want to track the flow of goods, capital and people.’
‘This also ties in with IT security themes, as governments want to use these to follow terrorism funding, for example.’
‘This is a very interesting development which can be tied to the infrastructure theme. We own a company called OSI Systems which is in our top 10 plays and they are providing these products.’
With increased internet retail operations, as well as banking and payments, Kolb has positioned his fund to take advantage of further growth in this area. This ties into the emerging market growth story as well, Kolb said.
‘One of the other top 10 positions we have at present is Wirecard, the German company. This is an interesting company in the field of electronic payments.’
‘It is providing the software and system for online payments and processing services as well as fraud protection. It is a very interesting company with exposure in Europe and Asia.’
One theme which falls into Kolb’s remit is health and he has 25% of the fund positioned in healthcare names.
This is a theme Kolb expects to perform strongly and said flu scares – such as Bird Flu and Swine Flu – had shown the opportunities innovation in this sector can create.
‘Health protection is another theme we are following as we are looking at companies such as diagnostics , biotech and vaccination companies and these are some of themes we are seeing particular innovation in. These sorts of additional, niche plays are a good way of providing alpha.’
With the growth of smart phone use and cyber-criminal activity to match, Kolb anticipates a strong growth in mobile phone security technology in the coming years.
This area of investment, which falls under the umbrella of IT security in Kolb’s portfolio, is a fast growing, rapidly changing space, which Kolb expects to throw up some innovative, niche players.
‘A lot of people are using smart phones and the security of it is a growing area. This means companies which are able to operate here will be very interesting for investors as the technology has to become more adequate for use.’