• Trust Brokers offer essential services, creating defensive investments with stable, recurring revenue streams.
• Leading firms benefit from strong competitive moats, including high switching costs and regulatory mandates.
• Rising cybersecurity threats and the AI revolution drive unprecedented demand for security and validation services.
• Key sectors like cybersecurity and credit ratings capitalize on the growing global need for verified trust.

In a World of Lies, Trust is a Rather Good Business to Be In

Let’s be honest, trust isn’t what it used to be. Time was, a firm handshake and a chap’s good word were enough to seal a deal. Today, that world feels like a distant, black and white memory. In our sprawling, chaotic digital age, trust has become a commodity. It’s something that is manufactured, packaged, and sold for a handsome profit. And I must say, as an investment theme, it’s rather compelling. The companies that have cornered this market, the so called ‘trust brokers’, have stumbled upon a brilliant truth. In a world riddled with uncertainty, businesses will pay almost anything for a slice of certainty.

The New Gold Rush Isn't Gold, It's Certainty

Think about it. If you run a large company, can you really afford to skimp on cybersecurity? It would be like a bank deciding to save a few quid by getting rid of its vault doors. It’s simply not an option. The same goes for a company needing a credit rating to borrow money. These services are not discretionary luxuries, they are fundamental, non negotiable costs of doing business. This creates an incredibly resilient revenue stream, one that doesn't really care if there’s a recession looming. People will always need locks for their doors, and businesses will always need digital locks for their data.

This inelastic demand is the secret sauce. While other sectors fret about consumer spending, the trust merchants are selling something everyone needs, all the time. It’s a beautiful business model, really. They profit not from boom times, but from the underlying complexity and risk of the modern world itself. And let’s face it, complexity and risk aren’t going out of fashion anytime soon.

The Digital Bouncers and Financial Headmasters

At the sharp end of this trade, you have the cybersecurity firms. Companies like CrowdStrike and Palo Alto Networks are, in essence, the digital bouncers for the global economy. They stand at the virtual door, checking IDs and making sure no unsavoury characters get inside to cause a ruckus. CrowdStrike’s genius was to build its security in the cloud, watching billions of tiny events to spot trouble before it starts. It’s less like an old antivirus program and more like a tireless, all seeing security guard. Once a company installs this kind of system, the cost and hassle of switching to a rival is enormous. That gives them customer loyalty that other industries can only dream of.

Then you have the financial headmasters, the credit rating agencies like Moody’s. These firms wield an almost comical amount of power. With a single report, they can decide the financial fate of entire countries, let alone companies. They, along with a couple of their peers, form a neat little oligopoly, acting as the gatekeepers to global capital. If you want to borrow serious money, you need their stamp of approval. It’s a fantastic position to be in, getting paid by the very entities you are judging.

When you put them all together, you see a pattern. These are the companies selling certainty in an uncertain age. It’s a fascinating collection of businesses, a sort of who's who of digital gatekeepers. You can find a group of them in what some are calling the The Trust Merchants basket, which bundles these sorts of firms together.

Of course, nothing is a sure bet. Investing always carries risk, and you could lose money. These companies face their own challenges. The cyber threats get cleverer, and the regulators could always change the rules of the game. What’s more, quality doesn’t come cheap, and many of these stocks trade at prices that reflect their dominant positions. But to me, the long term trend seems clear. The world is only getting more digital, more complex, and frankly, more dangerous. In that environment, selling peace of mind might just be one of the best businesses to be in.

Deep Dive

Market & Opportunity

• Cybersecurity spending is projected to exceed $300 billion globally.
• Trust services are considered essential, non-discretionary business expenses with inelastic demand.
• Credit rating agencies and cybersecurity firms benefit from strong pricing power and stable revenue streams.

Key Companies

• Moody's Corporation (MCO): Provides credit ratings and analytics, serving as a gatekeeper to global capital markets. Its analytics division offers risk assessment tools for climate change and cyber threats.
• CrowdStrike Holdings, Inc. (CRWD): Offers a cloud-native endpoint security platform called Falcon, which uses AI for real-time threat detection and response. The company reports customer retention rates often exceeding 90% annually.
• Palo Alto Networks, Inc. (PANW): Provides a comprehensive security ecosystem covering firewalls and cloud protection, creating a "security operating system" for enterprises through the integration of acquired firms.

Primary Risk Factors

• Cybersecurity companies face the constant threat of technological disruption from new attack methods.
• Credit agencies must navigate potential regulatory challenges and changes in financial markets.
• Companies may trade at premium valuations, which could potentially limit upside returns.
• The competitive landscape is evolving, with the potential for new, disruptive competitors to emerge.

Growth Catalysts

• The AI revolution is creating more sophisticated threats, increasing demand for advanced security and validation.
• Regulatory frameworks often mandate the use of credit check and cybersecurity services, creating a "regulatory moat".
• Digital transformation across industries is expanding the attack surfaces that require protection.
• Increasing complexity in financial markets drives demand for sophisticated risk analysis.
• High switching costs and recurring revenue models create customer loyalty and predictable income.

Investment Access

• The Trust Brokers basket is available on Nemo.
• Nemo is an ADGM-regulated platform.
• The platform offers commission-free investing and fractional shares starting from $1.
• All investments carry risk and you may lose money.