(Bloomberg) -- One of the best-performing funds in Japan this year invests in upcoming U.S. technology stocks at the forefront of a booming industry: fighting cybercrime.
Mitsubishi UFJ Kokusai Asset Management Co.’s Cybersecurity fund has returned 37% in 2019, beating almost all peers, after shares of top picks surged. The fund invests in everything from online identity-management firms to cloud-based security providers.
The global cybersecurity market is forecast to grow 80% to $248.3 billion by 2023, from $137.6 billion in 2017, according to data tracker Statista. For Ting Li, a senior fund manager at Mitsubishi UFJ Kokusai, investing in stocks poised to benefit is a surefire strategy.
“It’s been a real big hit,” she said of the fund, speaking in an interview in Tokyo. “This is a market where demand can only grow.”
The fund holds 39 stocks, most of which specialize in cybersecurity. U.S. firms accounted for more than 80% of investments at the end of May.
It comes in two versions, one hedged against currency movements, and has increased its assets to about 111 billion yen ($1.03 billion) in total since inception in July 2017.
Okta Inc., its largest holding, allows users to access multiple websites and applications with a single, secure password. The stock, which accounts for 9% of the unhedged fund’s assets, has more than doubled this year as investors bet on the prospects for earnings growth. Goldman Sachs Group Inc. upgraded Okta to buy in March, saying the company had one of the highest upsides to profit estimates.
“The company has consistently delivered strong growth with attractive gross profit margins,” said Walter Price, a San Francisco-based senior portfolio manager at Allianz Global Investors, which manages the fund for Mitsubishi UFJ Kokusai. “It is disrupting the large market for identity and access management.”
Zscaler Inc., the second-largest holding at 8.9% of assets, has also doubled in 2019. The company provides secure cloud services for corporate clients. Shares soared 22% on March 1 alone after its earnings-per-share forecast beat estimates.
The fund has returned about 20% over the past year, beating 96% of peers, according to data compiled by Bloomberg. The unhedged version was named one of Morningstar Inc.’s funds of the year in 2018 in Japan.
But not everyone is getting carried away.
“I have to say, this fund’s been doing well because the overall market’s been doing well,” said Shoko Shinoda, a fund analyst at Rakuten Securities Inc. in Tokyo. “It’s only been about two years since inception and I personally don’t think we can evaluate how good it is at this stage. I’m in wait-and-see mode.”
As well as pure-play cybersecurity names, the fund invests in some technology heavyweights with related businesses. They include Microsoft Corp., which accounts for 4.9% of holdings, Alphabet Inc. and Samsung Electronics Co.
Allianz said it chooses stocks that have market leadership, strong barriers to entry, high-quality management and sustained sales and earnings growth.
“These are issues that impact the entire society, so there is clear demand,” Mitsubishi UFJ Kokusai’s Li said. “It’s an investment theme with the potential for very high returns.”
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