WisdomTree Cybersecurity ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and an underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm a Below Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Datadog

Palo Alto Networks

Tenable Holdings Inc

HashiCorp

CrowdStrike

Elastic N.V

Fortinet

Cloudflare

Zscaler

Okta

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. WisdomTree Cybersecurity ETF earns an Above Average Process Pillar rating. The most important driver of the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's impressive risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.4 stars, also strengthens the process. Lastly, the process is limited by the turnover of talent across its parent firm. The firm's asset-weighted manager tenure of three years suggests it could do more to retain portfolio managers.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the price and yield performance of the WisdomTree Team8 Cybersecurity Index.  The index is designed to provide exposure to equity securities of exchange-listed companies globally, which are primarily involved in cybersecurity and security-oriented technology that generate a meaningful part of their revenue from cybersecurity activities and are experiencing revenue growth. To the extent the index concentrates in the securities of a particular industry or group of industries, and the fund will concentrate its investments to approximately the same extent as the index. It is non-diversified. 

 The portfolio is overweight in technology by 21.1 percentage points in terms of assets compared with the category average, and its basic materials allocation is similar to the category. The sectors with low exposure compared to category peers are communication services and consumer cyclical, underweight the average by 9.4 and 4.4 percentage points of assets, respectively. The portfolio is positioned across 25 holdings and is relatively top-heavy. Of the strategy's assets, 56.9% are concentrated within the top 10 holdings, as opposed to the typical peer's 52.3%. And finally, in terms of portfolio turnover, on a year-over-year basis, 45% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

WisdomTree’s team is good but unexceptional, earning the strategy an Average People Pillar rating. There’s a deep bench of five managers listed on the fund. Together, they manage a total of 113 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Average

People

WisdomTree is improving, but its shaky global fund lineup and uncertain trajectory hold its rating to Below Average. 

WisdomTree’s research organization has long been a strength. Under CIO Jeremy Schwartz, the team has generated creative, economically sound ideas and evolved them into investable products, like the efficient core series. A recent focus on investor education spawned the Portfolio Analysis Tools Hub, an online platform that taps the team’s brainpower to help investors make better investment decisions.

The firm’s product lineup is a mixed bag. To complement its core lineup of fundamentally weighted strategies, WisdomTree has recently launched funds targeting established factors instead of trendy themes—an encouraging reorientation. Yet the shutdown of WisdomTree U.S. Growth and Momentum ETF calls WisdomTree’s commitment to these funds into question, and vestiges from its laxer product-development era look ripe for closure. Its European lineup features risky trading tools that are hard for investors to use well. 

WisdomTree’s future may hinge on WisdomTree Prime, its blockchain-based digital wallet. The launch reflects founder and CEO Jonathan Steinberg’s conviction in the disruptive potential of the blockchain. Prime shouldn’t hurt WisdomTree fund investors (most funds on the platform are zero-fee), but it may distract the firm from shoring up its core offering.

Below Average

Parent

WisdomTree Cybersecurity Fund

WCBR tracks an index of developed market companies primarily involved in cybersecurity and security-oriented technology.

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WisdomTree Cybersecurity Fund ETF is a pure-play cybersecurity fund with a unique stock selection methodology. The ETF has a short track record and a high-volatility, high-risk portfolio. Consensus estimates suggest potential upside of 13% by the end of 2024, with strong revenue and EPS growth in the cybersecurity sector.

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The increasing use of cloud technology and digitization of businesses has led to a higher demand for cybersecurity solutions, raising the outlook for WCBR. Cybersecurity is particularly important for industries such as the military, healthcare, and artificial intelligence, as they deal with sensitive and valuable information. I rate this ETF a Buy, as the workforce moving online is likely to call for enhanced cybersecurity technology when considering threats both inside and outside the country.

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