Business

The investment case for cybersecurity and rising dividends

ProDentim

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Strategies focused on cybersecurity and rising dividends are generating strong investor demand, and for good reason. Regarding the former, consumers are leading more of their lives online and businesses are increasingly relying on the digital world to run their operations. This opens the door to cybercrime and increases the need for ever more vigilant cybersecurity. As for the latter, dividends traditionally play an important role in the total returns generated by equities and are a vital source of investment income, especially in the current era of low bond yields.

As a result, exchange-traded funds focused on cybersecurity and rising dividends appear to rank among the top five holdings of institutional investors in Mexico. First Trust, the sixth-largest ETF sponsor in the United States and one of the Nasdaq’s largest index ETF clients, has two Mexico-listed products that track Nasdaq indices focused on cybersecurity and rising dividends. , respectively. These are among 44 First Trust products that track the Nasdaq indices that are interlisted in Mexico.

The Nasdaq CTA Cybersecurity Index™ (NQCYBR™) taps into a cybersecurity ecosystem experiencing significant growth and diversity of products and services. These opportunities range from next-generation firewalls and intrusion detection/prevention systems to email and Internet of Things security.

The importance of cybersecurity was highlighted by the wave of notable cyberattacks and/or security breaches that occurred during the first half of 2022 and targeted global companies (including Microsoft, Nvidia and Coca-Cola ) and national governments (including Costa Rica, Peru and Italy). ).

Sophisticated solutions aimed at staying ahead of cybercrime exist in the form of cybersecurity-related artificial intelligence and machine learning, as well as “Zero Trust” solutions where entry verification is required to anyone seeking access to a particular computer network. And in the future, when quantum systems are able to crack modern public-key encryption, quantum computing will play a key role in cybersecurity developments.

The need for cybersecurity is relentless, and survey data shows that cybersecurity spending remains a priority in business budgets. Meanwhile, governments are taking steps to strengthen cybersecurity through regulatory and legislative measures.

The Nasdaq CTA Cybersecurity Index™ tracks the performance of companies primarily involved in creating, implementing and managing security protocols for private and public networks, computers and mobile devices as part of efforts to protect the integrity of data and network operations. Companies are selected based on the classification determined by the Consumer Technology Association, and constituents must have a minimum market capitalization of $500 million, a minimum three-month average daily dollar trading volume of $1 million, and a minimum float of 20%. The index has semi-annual replenishments (March and September) and quarterly rebalances (March, June, September and December). Securities have a maximum weight of 6%.

With respect to dividends, the Nasdaq US Rising Dividend Achievers Index™ (NQDVRIS™) contains companies determined by the Nasdaq to have increased their dividend value over the previous three- and five-year annual periods. In addition, the index is designed to analyze a company’s financial health (eg strong cash balance, low debt and increasing earnings) to select constituents best positioned to continue to increase their dividends.

The index is better able to adapt to a rising rate environment and has generally outperformed traditional dividend indices during periods of higher interest rates.

Index constituents must be among the top 1,000 constituents by market capitalization within the U.S. benchmark Nasdaq™ Index, after excluding real estate investment trusts and mortgage REITs. Components must have a minimum three-month average daily dollar trading volume of $5 million, trailing 12-month earnings per share greater than trailing 12-month earnings per share three years prior, cash ratio / debt greater than 50% and a payout ratio not exceeding 65%. Eligible securities are ranked in descending order of dollar dividend increase; in descending order of the current dividend yield; and in ascending order of distribution rate. The three ranks are added together to obtain a single combined rank. The 50 titles with the lowest combined ranks are selected (a maximum of 15 titles per ICB Industry is allowed). The index is equally weighted, with annual replenishments in March and quarterly rebalances in March, June, September and December.

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