After the so-called WannaCry ransomware cyber attack infected over 200,000 computers over 150 countries, the specter of growing security issues in an increasingly interconnected world could help strengthen the nascent cybersecurity industry and sector-related exchange traded funds.
The recent WannaCry attack leveraged a hacking tool built by the U.S. National Security Agency, which leaked online in April.
“This is an emerging pattern in 2017,” Microsoft President Brad Smith told Reuters. “We have seen vulnerabilities stored by the CIA show up on WikiLeaks, and now this vulnerability stolen from the NSA has affected customers around the world.”
A cyber risk modeling firm estimated the total economic data at $4 billion, including costs associated with business interruption as companies and government agencies recover from the attack, according to a Direxion note.
The attack affected a diverse group of all sizes. For instance, auto maker Renault suspended manufacturing at some plants in Europe to prevent the spread of the virus, along with a Nissan manufacturing plant in England, hundreds of hospitals and clinics in the British National Health Service, German rail operator Deutsche Bahn and FedEx Corp. The virus was found in 400 computers at a Jakarta hospital, disrupting the registration of patients and finding records.
“If you think that the number and frequency of cyber attacks will continue to trend upward, you may be bullish on cyber security infrastructure stocks,” Direxion analysts said in a note.
Investors may also track the burgeoning industry through related indices, like the ISE Cyber Security Index (HXRTR), which is comprised of domestic and foreign companies that are cyber security infrastructure providers, provide cyber security services, or are companies for which cyber security is a key driver of their business.
The PureFunds ISE Cyber Security ETF (NYSEArca: HACK), the first exchange traded fund dedicated to the fast-growing cyber security space, reflects the performance of the ISE Cyber Security Index The First Trust NASDAQ CEA Cybersecurity ETF (NasdaqGM: CIBR) also tracks companies engaged in the cybersecurity segment of the tech and industrials sectors.
While both track the cybersec segment, HACK focuses more on smaller companies starting out in the software security segment, with a focus on small- and micro-cap stocks, which makes up half of its portfolio. On the other hand, CIBR leans towards mid- and large-caps.
Alternatively, traders can also capitalize on sudden market turns through recently launched leveraged and inverse options, including the Direxion Daily Cyber Security Bull 2X Shares (NYSEArca: HAKK) and the Direxion Daily Cyber Security Bear 2X Shares (NYSEArca: HAKD), which take the 200% and -200% daily exposure of the ISE Cyber Security Index, respectively.