Are Cybersecurity Investments Right for Your Portfolio?
The tech sector has been seeing a lot of volatility, but there is still one category within it that is going strong, and with good reason.
A slew of major cyberattacks over the past years, and the increasing threat it poses across industries and geographies have spotlighted the need for cybersecurity. Studies show that cybersecurity is and will continue to be a top priority for businesses across sectors in 2023, bolstering the strength and long-term outlook of the industry.
Cybersecurity is the application of technologies, processes, and controls to protect against the unauthorised exploitation of systems, networks, programs, devices and data, and reduce the risk of cyber attacks.
It is an important consideration for a number of reasons, including:
(1) The increasing cost of cybersecurity
(2) Increasingly sophisticated cyberattacks
(3) Its significance as a critical board-level business issue; and
(4) Cybercrime becoming big business, with a recent report stating that the world economy loses over 1 trillion dollars a year due to cyber attacks.
The need of the hour
Digital transformation, migration to the cloud, a move towards open access software, remote working and the application of AI into key industries have all been massive shifts that governments, businesses and individuals have been making in just a few years.
This rapid growth of tech in our daily lives has left it open to vulnerabilities, and cybersecurity has to match this pace of growth.
Scaling tech directly influences the scale of the risk it faces. As we digitize everything from oil lines and defence infrastructure to medical data and business information, security plays an increasingly important role in protecting our key interests and even geopolitical security.
Investing in cybersecurity
Some analysts say that leading cybersecurity vendors could see their revenues rise rapidly but also sustainably, given the expected long-term demand for cybersecurity services. The natural consequence of the growing complexity of cyberthreats and hackers’ capabilities is the increasing demand for and value of the security sector.
Cybersecurity could be a good addition to long-term portfolio holdings, and research has shown that it is geared to be the fastest-growing category compared to others in the software space.
However, investments into specific providers need to be considered carefully. Not all companies are doing well, and there are a number of mergers and acquisitions that have weakened rather than strengthened companies’ balance sheets.
Cybersecurity investments worth considering
Some factors you need to consider when investing in cybersecurity equity are governance, including the company’s risk management, the nature of its products, the data available and their projections. It’s worth spending some time familiarising yourself with the industry itself to gauge the value and potential of your choice of investments.
Vendors in sectors such as endpoint security and network security could be good additions to a balanced portfolio as these are services that cater to a wide range of users, from governments and global corporations to individual home users.
In our unpredictable geopolitical climate, defence and aerospace cybersecurity providers could also be lucrative opportunities to diversify your portfolio.
A thematic ETF is also a great option since its varied options could lend your capital stability, as well as help you stay on top of market trends.
The 2022 Q3 earnings season, along with market forecasts show that the demand for cybersecurity services is not likely to slow down anytime soon. Many sector leaders are likely to continue hitting high long-term revenue growth targets amid surging demands.
Talk to one of our experts at Finsbury Wealth to discuss whether cybersecurity is a smart investment opportunity for you to diversify your portfolio and take advantage of compounding gains in the long term.