Investors Can Get Ahead of Cyber Risk – Here’s How

With data breaches occurring more frequently, there is a notable concern for institutional investors and money managers. Cyber incidents can damage a company's reputation and market capitalization, as one recent study found that share prices fall by an average of 5 percent after the disclosure of a data breach.

Over the last year, we've seen the implications of cyber incidents on social media platforms like Facebook and Twitter. Then, just about a month ago, global hospitality giant Marriott International announced that data on approximately 500 million of its customers has been breached by cyber criminals. These types of attacks are not only catching the eyes of investors - they are also coming under the scrutiny of international governments.

Given these developments - and the associated risks they create for portfolios - what can money managers (and those with a fiduciary responsibility) do to protect their assets?

To get ahead of cyber criminals, investment managers are using Research Signals Cybersecurity Factors in their decision making procedures. Research Signals provides 35 cybersecurity risk factors on more than 3,000 public companies, complemented by the expertise of BitSight, a leading provider of cybersecurity intelligence.

In alliance with BitSight, Research Signals delivers objective, quantitative measurements on a company's security performance, with daily security ratings ranging from 250 to 900. Values are determined by BitSight's analysis on security events involving malware, vulnerabilities, user behavior and more - with ratings determined by sophisticated algorithms that use externally observable, non-intrusive methods.

In our 2018 whitepaper on cybersecurity, we noted: "Technology and telecommunication services have been the weakest sectors over time, an interesting fact given that they are on the cutting edge of technology, but perhaps suggesting that their lines of business provide more opportunities to be hacked and are the hardest to protect against cyber risks. These observations indicate an industry adjustment may be warranted, which we address in our factor calculations."

Fast forward to the top of this year, and the Research Signals US Large Cap universe of approximately 1,000 stocks shows that 340 companies with a high risk score lower than 600. Of those, 21% are in the technology sector and another 21% are in the cyclical goods & services sector.

And that only covers about one third of the stocks that Research Signals is tracking.

While it's true that cybersecurity is a very serious contemporary issue for investors, the good news is that strong intelligence is available to help gauge a company's preparedness.

Research Signals can provide specific company scores to our customers upon request. For more information, please contact Katerina Lipatova to learn more.

Posted 15 January 2019 by Katerina Lipatova, Director, Research Signals, IHS Markit

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.