Our theme of Cyber Security Stocks has seen a sizable sell-off this year, declining by close to 18%, roughly in line with the Nasdaq-100. There are multiple reasons for the sell-off. Firstly, the theme is largely comprised of high-growth, high-multiple stocks, which are less attractive to investors in a rising interest rate environment. Moreover, there are concerns about the U.S. economy with GDP contracting over the last two quarters. The big boom in demand seen through the early pandemic as companies spent on securing their increasingly distributed workforces is also likely easing, impacting cybersecurity companies. However, there’s probably a good reason for investing in these stocks following the recent drawdowns.
We believe that cybersecurity-related spending will remain a top priority for businesses and the government even if the economy continues to remain weak. Governments, critical infrastructure, and businesses in the U.S. and Europe remain key targets of state-sponsored cyber-attacks, as Russia potentially looks to retaliate against sanctions imposed by Western powers following the Russian invasion of Ukraine. Given that cyber attacks have the potential to cause substantial economic damage, we believe that spending on this area will only increase in the future. Moreover, even though the trend of remote working could ease, we think that hybrid working setups will remain in place going forward, and this means that companies will continue to prioritize areas such as endpoint protection and cloud security.
Within our theme, Okta stock has been the worst performer declining by almost 55% year-to-date. On the other side, Qualys stock has been the strongest performer, with its stock up by about 13% year-to-date.
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|S&P 500 Return||4%||-10%||91%|
|Trefis Multi-Strategy Portfolio||5%||-9%||258%|
 Month-to-date and year-to-date as of 8/19/2022
 Cumulative total returns since the end of 2016