It’s been more than a month since Russia invaded Ukraine — a move decried in the diplomatic community and one that is affecting prices for a variety of assets.
Given Russia’s proclivity and reputation for cyber warfare, it’s not surprising that cybersecurity stocks and the related exchange traded funds are proving responsive to the war in Ukraine. Over the past month, the WisdomTree Cybersecurity Fund (NASDAQ: WCBR) is higher by 6.28%.
It can be argued that geopolitical conflict prompting investors to reexamine cybersecurity assets is beneficial to WCBR because the broader complex of growth stocks, which is where cybersecurity equities dwell, is being hindered this year by rising interest rates and high, persistent inflation.
“The market recognizes this as well. Cybersecurity stocks, as measured by the WisdomTree Cybersecurity Fund (WCBR), have outperformed benchmark indexes since Russia invaded Ukraine. Despite recent gains, WCBR still has ground to cover, as it is down 11% year-to-date,” notes WisdomTree analyst Kara Marciscano.
Since publication of Marciscano’s note on March 29, WCBR has made up some ground, paring its 2022 loss to 5.66%. Still, it’s worth noting that since Russia invaded Ukraine on February 23, WCBR is beating both the S&P 500 and the Nasdaq-100 Index.
Coming off its semi-annual rebalance, which brought the addition of three stocks and the removal of one, WCBR remains a pertinent near- to medium-term tech idea for risk-tolerant, tactical investors.
“In the midst of the current Russia/Ukraine conflict, we expect all of our themes to continue playing a critical role in global cybersecurity dynamics; however, there may be a heightened focus on ransomware resilience as well as on the security of things, specifically industrial control systems and critical infrastructure security,” adds Marciscano. “These common attack vectors can be exploited in nation-state-related attacks to maximize control of the target, and potentially even inflict damage or harm.”
Indeed, it’s common for investors to get excited about cybersecurity stocks and ETFs based on near-term headlines. Market participants can’t be blamed for those reactions. However, it pays to remember that cybersecurity intersects with other disruptive trends, and as such, it’s important to take a long-term view of a product like WCBR.
“A driving force will be the use of smarter security technologies such as security automation and artificial intelligence (AI), which are likely to be game changers. Resilience & recovery is also key, as organizations must ensure there are sufficient backups and ransomware resilience measures to reduce the impact of attack and the likelihood of business-wide interruptions, while speeding up recovery time,” concludes Marciscano.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.