A Rising Threat and a Rising Investment Niche: Cybersecurity

A recent warning from the National Counterintelligence and Security Center (NCSC) director, Michael Casey, paints a grim picture of rising cybersecurity threats. Casey highlighted a 100% surge in cyber incidents and ransomware demands, emphasizing the growing threat landscape. This, coupled with the increasing use of disgruntled employees as “human assets” for cyberattacks, underscores the need for robust cybersecurity measures. However, for investors, this rising threat translates to a potential opportunity in the booming cybersecurity sector, which could offer a hedge against some risks in tech-heavy portfolios.

Casey, speaking at the CNBC CEO Council Summit on Tuesday, made it clear that there is a growing demand on the cybersecurity sector as the global landscape becomes increasingly digital and interconnected.

A Tech Investor’s Hedge

Tech investors may find that a large part of the sector takes a sudden hit if any major tech company or system is breached by a cyberattack. A related segment in tech that would likely move in the opposite direction is cybersecurity. Diversifying into cybersecurity is most easily accomplished through ETFs. This diversification can help mitigate the risks associated with investing in individual cybersecurity stocks, as the performance of the ETF is tied to the overall performance of the sector rather than the success of a single company.

There are several pure-play cybersecurity ETFs to consider; the three below are among the largest and most liquid.

ETF Comparison

As discovered using by the TipRanks ETF Comparison Tool, over the past year, each ETF has had desirable returns.

• First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR): With almost $6.2 billion in assets under management, the First Trust NASDAQ Cybersecurity ETF is the largest pure-play ETF in this part of the technology sector
• Amplify Cyber Security ETF (NYSEMKT:HACK): The Amplify Cyber Security ETF has $1.73 billion in assets under management and is known for its focus on companies that provide security-related hardware, software, and services.
• Global X Cybersecurity ETF (NASDAQ:BUG): The Global X Cybersecurity ETF has $721 million in assets under management and is designed to track the performance of the Indxx Cybersecurity Index.

Investors should note that the tech-heavy Invesco NASDAQ-100 Trust (NASDAQ:QQQ) ETF was up 28.03% during the same period.

The Future of Cybersecurity Investments

As the cybersecurity landscape continues to evolve, the demand for innovative solutions and services is expected to grow. This could present a significant opportunity for investors looking to capitalize on the sector’s growth potential. By investing in cybersecurity ETFs, investors can gain exposure to a range of companies at the forefront of the industry, potentially benefiting from the sector’s long-term growth prospects.

Key Takeaway

As much as cyberattacks are a threat to tech companies and the organizations that house data or rely on technology, a simple attack could send stocks in the tech sector tumbling. Diversifying to hedge against this possibility doesn’t have to mean leaving the tech sector. There are cybersecurity ETFs and individual stocks that may provide correlated upside to big-tech, but really shine if ill intent threatens any one tech company.