Broadly speaking, cybersecurity equities are languishing this year. Throw in investors’ intense focus on artificial intelligence (AI) stocks and it’s understandable that some market participants aren’t paying attention to cybersecurity opportunities.
That shouldn’t be the case for some simple reasons. One is that cyber breaches are increasing in frequency. That indicates there is still strong long-term demand for the services and technologies purveyed by members of the WisdomTree Cybersecurity Fund (WCBR). The exchange traded fund has recently shown signs of life, gaining 3.24% for the 90 days ending Sept. 16.
In the second quarter, the number of global cyber attacks surged 30% on a year-over-year basis. Just last month, hackers targeted oil services provider Halliburton and semiconductor company Microchip Technology. And those are just two examples of recent cyber breaches.
WCBR Remains Relevant
There was a time when headlines pertaining to large-scale cyber intrusions would move cybersecurity stocks. But as the industry has matured, those near-term headline effects have waned. For investors considering ETFs such as WCBR, that’s not a negative. That’s because those attacks could be positive catalysts over extended time frames.
“In our opinion, the existence of the attacks emphasizes the market need for protection as well as the market need to continue to evolve and improve that protection. The companies that can ultimately provide this will be in a position to serve a very important market demand,” noted Christopher Gannatti, global head of research at WisdomTree.
Beyond the impact of cyberattacks, there are other factors that could benefit WCBR, which tracks the WisdomTree Team8 Cybersecurity Index, in the months ahead. Perhaps surprising to some investors is the point that those potential catalysts are macro in nature, not industry-specific.
Challenges Remain, But Cybersecurity Still a Megatrend
WisdomTree’s Gannatti points out that WCBR is home to many companies that are mid- and small-cap names. That indicates the ETF could benefit from a move to smaller stocks. Likewise, cybersecurity stocks are rate-sensitive, which implies the group could benefit from monetary easing by the Federal Reserve. So while challenges remain for the industry, that doesn’t diminish its status as a megatrend.
“Our takeaway is that we have a megatrend, cybersecurity, that people and companies must remain attentive to. We don’t know exactly which companies or technologies will be the winners, but that is one benefit of working with experts like Team8 and having their knowledge influence the WisdomTree Team8 Cybersecurity Index every six months,” explained Gannatti.
“So far, cybersecurity has seemed to separate itself, performance-wise, from more general software solutions, and we think that the market demand for these kinds of services could continue over the coming years,” he added.
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