Russia-Ukraine War Puts Focus Back on Cybersecurity ETFs
Russia’s war with Ukraine is putting myriad asset classes in the spotlight, such as commodities, oil and natural gas.
That makes sense owing to Russia’s status as one of the world’s largest energy producers, but the country is known for some other things beside oil production. On the more nefarious side of the ledger, Russia has quite the history of cyber crime. Owing to punitive sanctions levied against the Russian economy by the West, there’s increasing concern Russian hackers will attack the U.S.
“I have previously warned about the potential that Russia could conduct malicious cyber activity against the United States, including as a response to the unprecedented economic costs we’ve imposed on Russia alongside our allies and partners," said President Biden earlier this week. "It’s part of Russia’s playbook.”
With all that in mind, it’s probably not surprising the Nasdaq CTA Cybersecurity Index is higher by almost 18% since Russia invaded Ukraine. In other words, it’s a fine time to consider cybersecurity ETFs.
First Trust NASDAQ Cybersecurity ETF (CIBR)
The First Trust NASDAQ Cybersecurity ETF (CIBR) tracks the aforementioned Nasdaq CTA Cybersecurity Index and the fund is the oldest and largest product in the cybersecurity ETF category. Even before Russia’s aggression toward Ukraine, CIBR and its components merited consideration.
“Cybercrime (was) has been one of the most prominent storylines throughout 2021, with several highly publicized cyberattacks," according to First Trust research. "These were not limited to high-tech industries. They included targets such as a critical oil pipeline in the southeastern U.S., a meatpacking plant in Minnesota, a chain of grocery stores in the U.K., gas stations in Iran, and many others."
The $6.27 billion CIBR, which turns seven years old in July, holds 41 stocks, several of which are rumored to be takeover candidates as larger companies look to bolster cybersecurity offerings. CIBR’s top 10 holdings combine for approximately 44% of the fund’s weight.
WisdomTree Cybersecurity Fund (WCBR)
The WisdomTree Cybersecurity Fund (WCBR) follows the WisdomTree Team8 Cybersecurity Index, giving this fund one of the more unique approaches in this category.
WCBR’s index has the obvious requirement of mandating that member firms derive at least half their sales from cybersecurity products and services, but it goes further than that. For example, the gauge screens companies on the basis of “growing fast” and “growing” as defined by compound annual growth rates in revue terms of 20% and 7%, respectively.
Beyond that, the proof is in the pudding that WCBR is a relevant cybersecurity ETF against the backdrop of Russian military aggression.
“On February 23, 2022, CrowdStrike noted, on its blog, the existence of a new wiper malware being used to target Ukraine systems, known as DriveSlayer," notes Christopher Gannatti, WisdomTree global head of research. "According to CrowdStrike, this was the second destructive malware found recently targeting the region, the first being WhisperGate."
Global X Cybersecurity ETF (BUG)
Still less than three years old, the Global X Cybersecurity ETF (BUG) is a quiet star in this group as highlighted by its impressive $1.23 billion in assets under management. Home to 31 stocks, BUG follows the Indxx Cybersecurity Index. Data confirm BUG is a solid long-term idea for tactical investors.
“Cybersecurity spending is expected to increase significantly with the global economy going digital," according to Global X research. "Ninety-six percent of organizations increased their cybersecurity spending in 2020, according to a recent survey. And 91% increased their cybersecurity budgets in 2021."
Speaking of data confirmation, BUG more than doubled since coming to market.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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