Casino Hacks Could Revive Interest in Cybersecurity ETFs

As has been the case for years, headlines are foisting cybersecurity investing back into the spotlight. This time around, hackers targeted one of the bastions of American indulgence and travel – the Las Vegas Strip.

Earlier this week, MGM Resorts International (MGM) disclosed it was the target of cyber breach – the effects of which the casino was still dealing with as of late Wednesday. It was also reported that Caesars Entertainment (CZR) recently dealt with a ransomware attack and it’s rumored the gaming company shelled out tens of millions of dollars to the cyber criminals.

As of late Wednesday, MGM hadn’t confirmed whether or not it’s the target of a ransomware hack, but speculation is rampant to that effect. Point is, executors of ransomware attacks view the endeavor as a lucrative enterprise and it is because affected companies generally have no choice but to pay.

That’s one reason why U.S. firms spent nearly $73 billion on cybersecurity last year and why that number is projected to continue climbing. It also highlights the potential with the following cybersecurity ETFs.

Global X Defense Tech ETF (SHLD)

Talk about good timing for a new ETF. The Global X Defense Tech ETF (SHLD) debuted Wednesday as MGM remained in the clutches of a cyberattack. A new spin on old guard cybersecurity ETFs, SHLD follows the Global X Defense Tech Index.

While it’s in its infancy and a departure from the standard cybersecurity ETFs, SHLD could prove relevant and for reasons beyond near-term headlines. The rationale supporting the fund is simple. There are increasing intersections between artificial intelligence (AI), cybersecurity and defense and shoring up defense by way of the other industries will require massive spending.

“By 2030, we project global military and defense spending will grow nearly 40% to top $3.1 trillion, an increasing share of which is likely to go towards artificial intelligence (AI), cybersecurity, and other defense technologies,” notes Mayuranki De of Global X.

WisdomTree Cybersecurity Fund (WCBR)

The WisdomTree Cybersecurity Fund (WCBR) tracks the WisdomTree Team8 Cybersecurity Index – a gauge that allocates about 54% of its weight to mid- and small-cap stocks, indicating investors can leverage the size factor with this cybersecurity ETF.

WCBR is near-term relevant for at least two reasons. First, some of its marquee components are trading at surprisingly low valuations. Second, companies are paying money they’d rather not part with to deal with ransomware attacks, learning the lesson that it’s better to be proactive than reactive when it comes to cybersecurity.

“The MGM hack underscores how digital transformation increases the attack surface and how physical infrastructure can be disrupted by a cyberattack,” said Tom Kellermann, senior vice president of cyber strategy at Contrast Security in the comments. “Guards, guns and vaults cannot defend against cyber-intrusions.”

First Trust Nasdaq Cybersecurity ETF (CIBR)

The First Trust Nasdaq Cybersecurity ETF (CIBR) is the original cybersecurity ETF having debuted more than eight years ago. Today, the fund, which follows the Nasdaq CTA Cybersecurity Index, is a $5.19 billion juggernaut and as relevant as ever as corporations and governments grapple with the specter of rising cyber attacks.

“Ransomware attacks spiked exponentially through 2021, increasing by 350% since 2018. The number of times firms paid settlement fees also increased by over 100%, and downtime incidents rose 200% through 2021,” according to cybersecurity provider Fortinet.

CIBR has 35 holdings with the top 10 combining for approximately half the fund’s roster.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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