Macro investors have been busy over the last several weeks. Surging rates on the long end of the Treasury curve, brought about in part from the September Fed meeting that featured an erasing of two possible rate cuts in 2024, volatile oil prices (which recently gave back a chunk of their Q3 gains), and a dollar that shows few signs of cooling off are just a few such narratives.
Now throw in a hot jobs report and geopolitical uncertainty, with a possible regional war breaking out in the Middle East. We will get a possible reprieve from those worries this week as eyes shift to corporate earnings for the third quarter.
I like to keep tabs on what’s happening in the cybersecurity space via the First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR). I reiterate my buy rating on the fund and see new clues as we head into year-end.
Just last month, MGM Resorts International (MGM) confirmed that a cyberattack in September would cause a $100 million hit to its Q3 profits. Be sure to read up on this ransomware attack in a recent MGM Resorts: Impact Of Ransomware Attack by Ryan Messick. Looking ahead, a slew of firm-specific events are likely to drive volatility in the CIBR ETF, earnings reports being among them.
CIBR Components Set to Report Earnings
According to the issuer, CIBR owns a basket of stocks of companies engaged in the cybersecurity segment of the Information Technology and Industrials sectors. It includes companies primarily involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices to protect the integrity of data and network operations.
CIBR is a large industry ETF with more than $5 billion in assets under management. The annual expense ratio is somewhat high at 0.60% while the dividend yield is modest at just 0.34% as of October 6, 2023. While the ETF has impressive momentum and relative strength thus far in 2023, it is considered risky in terms of its standard deviation. Still, CIBR’s 30-day median bid/ask spread is narrow at only four basis points while daily volume over the past 90 sessions has averaged slightly less than 300,000 shares, so liquidity is strong. I urge prospective investors to check out some of CIBR’s peers which offer a cheaper expense ratio, but also caution that liquidity could be weaker with such ETFs.
Digging into the portfolio, CIBR has broad diversification across the style box. There is certainly growth bent to the allocation, with less than 10% of CIBR in value style. But with more than half of the portfolio considered small and mid-cap, there’s exposure to the macroeconomy with this play, also making it a highly volatile product. Now trading near 21 times earnings, per Morningstar, it is cheaper than when I last reviewed the fund back in the summer.
CIBR: Portfolio & Factor Profiles
It’s important to recognize that CIBR is a concentrated ETF with almost half the fund assets in just the top 10 holdings. All told, First Trust notes that 54% of the fund is confined to the Software industry – and that niche is particularly vulnerable to changes in corporate IT spending shifts as well as rising interest rates that could hurt long-duration equities.
CIBR: Fund Data & Holdings Information
Seasonally, cybersecurity stocks tend to trade higher now through late December, according to data from Equity Clock. The real upside stretch gets going once we get past Halloween, so be on the lookout for a bullish buying-opportunity treat through the remainder of October.
CIBR: Bullish Seasonal Trends Set to Ensue
The Technical Take
Back in July, I made the case that resistance was apparent near the $47 mark. While there were some minor moves above that point, the bulls could not take the fund above it. Today, I see the $47 to $48 zone as persistent resistance with the next layer of possible selling pressure coming about in the $53 to $54 area, right underneath the 2021 peak above $56. On the downside, support I noted near $43 held like a champ.
Notice in the chart below that the rising 200-day moving average also comes into play just under $43 – so we have a nice confluence of support there. Also take a look at what happened in early September when the fund attempted a breakout – the double top came on weaker RSI momentum, leading to a retreat toward the mid-$40s support range.
Overall, the trend is up and CIBR remains an outperforming area of the stock market and I would be long here with a stop under $42 for a nice risk/reward play into year-end. A breakout above $48 would help the longer-term bullish thesis, too.
CIBR: A New Trading Range, Eyeing Potential Upside to the Mid-$50s
The Bottom Line
I reiterate my buy rating on CIBR. The fund continues to sport a decent valuation given the growth outlook for the industry (we’ll hear more about that over the coming weeks as the Q3 earnings period gets underway in earnest). The chart, meanwhile, is attractive on both an absolute and relative basis.