What are the best cybersecurity shares to add to my portfolio?

A spate of cyber attacks has rocked the British high street.

In recent weeks, hackers have caused huge disruptions to M&S, Co-op, and Harrods by freezing critical systems.

It is unlikely to be the last we hear of high-profile brands falling victim to malicious actors, particularly amid growing economic and geopolitical uncertainty.

Companies will need to evaluate their systems as they start to affect their bottom lines, while governments will need to consider cyber threats from hostile countries.

With so much disruption and experts predicting that the threat will only worsen, investors may worry about how best to navigate this uncertain market.

But as the number of cyber threats accelerates, there might be a way to capitalise on this by looking at the companies that say they're there to protect us.

A decade ago, cybersecurity stocks wouldn't have crossed the minds of the average investor.

But a changing world in which digitalisation is now ubiquitous means companies and investors risk missing out if they ignore the opportunities these companies offer.

Jason Hollands, managing director of Bestinvest, says: 'Cyber crime is a huge and growing problem, with bad actors ranging from opportunistic scammers, organised criminals, terrorists and rogue states.

'It is a serious issue for businesses, government agencies, as well as for national security, requiring heightened vigilance and significant investment in technology to protect against threats.

'The meltdown in relations between Russia and the West, as well as the trade war between China and the US, compound the threat of covert cyber warfare, so security agencies are also heavily focused on cybersecurity and investment capital is consequently pouring into cybersecurity business alongside aerospace and defence firms.'

Goldman Sachs has also warned that a 'more dangerous world… means we need better security.'

Marco Poletti, global head of Security Software at the investment bank told its Exchanges podcast that the risks have pushed big tech companies to invest more in security.

'Cybersecurity is viewed as a competitive advantage, so if you're Google or Microsoft, if you're one of the big tech companies, being viewed as being focused on security is really critical to keep winning in your core markets.'

Cyber defence companies, while popular, are not immune to ongoing market uncertainty.

The ISE Cyber Security UCITS Index, which tracks 35 companies, has returned just 0.95 per cent in the year-to-date, with the index down nearly 10 per cent since February.

Leading cybersecurity stocks were swept up in the widespread tech sell-off, but over a longer period, it has outperformed the Nasdaq, returning 22 per cent over a year and 74 per cent over five years.

The sector might be better protected from the impact of tariffs because it is less exposed to them than other sectors.

In a note to clients, BCA Research analysts said: 'If anything, [it] benefits from geopolitical tensions as customers seek protection from international cyberattacks and cybercrime.'

What is clear is that as cyber attacks become more frequent, companies will have little choice to invest in cybersecurity services.

David Elton, partner at investment manager Castlefield says he has 'long invested in cybersecurity, attracted by its structural growth potential and increasingly vital role in enabling a safer digital environment.

'As cyber risks continue to escalate in both frequency and impact, we believe this space will remain a key component of well-diversified, forward-looking portfolios.'

Darius McDermott, managing director of Fund Calibre says: 'Given the fundamental shift in international relations, we can only see defence spending going one way over the next few years.

'Cybersecurity is a critical element of this story, with cyberwarfare having significant implications for national security and economic stability, as well as consumers and businesses.

'We think this trade is still just getting started.'

You might already invest in cybersecurity companies without realising it.

If you are a growth-focused investor that holds major tech firms like Google and Microsoft, you will already have your foot in the door as they make strides in cyber defence.

In March, Google doubled down on its efforts with the $32billion acquisition of cloud-based security firm Wiz.

Cybersecurity companies are also widely held in popular tech funds that you might already hold.

Hollands says: 'Cybersecurity companies are typically well represented in technology funds, with the Allianz Global Technology Trust – our top tech fund pick – owning the likes of Crowdstrike, one of the largest cybersecurity firms, as a top ten holding.'

Storm Uru and Clare Pleydell-Bouverie of Liontrust Global Innovation say: 'One of the biggest risks associated with AI is its misuse by bad actors. As such, we believe the cybersecurity companies best positioned are those that use AI to fight AI.

'CrowdStrike and Zscaler stand out in this respect, both created from the outset as 'cloud first', 'AI native' business models.'

Similarly, if you increased your exposure to defence companies earlier this year, you might hold big cybersecurity names.

The HanETF Future of Defence ETF, which invests in firms that focus on supplying NATO and NATO+ countries, has top ten holdings in Palantir Technologies and Fortinet.

Coatsworth says: 'For more familiar names, investors might check out BAE Systems and Chemring, both of which have small but important cybersecurity divisions.'

If you're looking for a more targeted approach, Hollands recommends specialist ETFs, including the Rize Cybersecurity & Data Privacy UCITS ETF, the WisdomTree Cybersecurity UCITS ETF, the L&G Cyber Security UCITS ETF and the First Trust Nasdaq Cybersecurity UCITS ETF.

He says: 'The latter of these, the First Trust Nasdaq Cybersecurity UCITS ETF, has delivered the strongest 3-year returns, rising 25 per cent, but it focuses solely on companies listed on NASDAQ and has concentrated positions with the five largest holdings (Cisco Systems, Infosys, CrowdStrike, Palo Alto Networks and Broadcom) representing over 37 per cent of the portfolio. It has ongoing costs of 0.60 per cent.'

McDermott adds: 'You can also gain exposure through active funds. For example, Japanese small cap fund Baillie Gifford Shin Nippon holds Global Security Experts.

'In Japan, underinvestment in IT is now being reversed, and cybersecurity in particular is seeing increased demand following several high-profile breaches, including a ransomware attack on a Toyota supplier.'