3 Cybersecurity ETFs for Investors

- July 29th, 2019

The number of cyberattacks is increasing — here are three cybersecurity ETFs focused on companies looking to combat this growing threat.

While the term cybersecurity originated in 1989, the industry has gained significant traction in the last few years thanks to a rising number of data breaches and cyber attacks.

Cybersecurity is defined as the measures taken to protect a computer or computer system against unauthorized access or attack.

In terms of overall cyber threats, Cybersecurity Ventures reports that cyberattacks will cost the world US$6 trillion annually by 2021, up from US$3 trillion in 2015. Similarly, a report by Juniper Research has revealed that global business spending on the cybersecurity market will grow by 33 percent over the next four years, reaching US$134 billion in spending annually by 2022.

A report issued by the Government of Canada in 2018 also highlights the global market, stating that cybercrimes were projected to cost $US600 billion in economic losses that year. This number is expected to reach upwards of US$6 trillion by 2021. The report also highlighted that the cybersecurity technology industry is anticipated to reach over US$202 billion by 2021 worldwide. A number of cybersecurity firms are attractive to exchange-traded fund (ETF) managers due to their projected global demand.

On that note, there are multiple ways to invest into cybersecurity. Take, for example, a list of nine pure play cybersecurity stocks that showcases companies that are pure play players in this sector. There is also this list of 10 top cybersecurity companies, which ranks the top publicly traded companies in the industry.

However, ETFs offer a low-cost alternative for investing in this space. ETFs’ fees and expenses are typically lower than  those of mutual funds and other actively managed financial instruments. According to ETF.com, there are three cybersecurity ETFs listed in the US that investors can add to their portfolio. Here, we take a closer look at some of the core holdings and features of three security ETFs. All numbers and figures are as of market close July 25, 2019.

1. ETFMG Prime Cyber Security ETF (NYSEARCA:HACK)

Net assets: US$1.64 billion; current price: US$41.54

The oldest of the two pure play cybersecurity ETFs is ETFMG Prime Cyber Security, which began trading November 2014 and tracks the ISE Cyber Security Index. Hack has 55 holdings with a 0.6 percent expense ratio and the largest market capitalization, standing at over US$1.64 billion. This first of our cybersecurity ETFs has over 10 percent annualized return since inception. The ETF is run by ETFMG, a lesser-known company amongst the goliath ETF managers in the space.

The next big cybersecurity stock is coming.

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The ETF’s top holdings are Cisco (NASDAQ:CSCO) with a 3.81 percent weighting, Splunk (NASDAQ:SPLK) at a 3.53 percent weight and Symantec (NASDAQ:SYMC) at 3.44 percent.

2. First Trust NASDAQ CEA Cybersecurity ETF (NASDAQ:CIBR)

Market cap: US$1.1 billion; current price: US$30.69

Launched in July 2015, CIBR tracks the NASDAQ CTA Cybersecurity Index and currently 44 holdings. The fund has a 55 percent allocation in the software sector, followed by 18 percent in IT services holdings and 12 percent in communications equipment. The expense ratio is similar to HACK at 0.6 percent.

CIBR’s top cybersecurity stocks include Splunk at a 6.48 percent weighting, Okta (NASDAQ:OKTA) weighted at 6.43 percent and Palo Alto Networks (NYSE:PANW) at a 5.95 percent weighting.

3. iShares Cybersecurity and Tech ETF (NYSEARCA:IHAK)

Market cap: US$4.1 million; current price: US$27.33

Last on our cybersecurity ETFs list is the iShares Cybersecurity and Tech ETF. Founded in 2019, IHAK tracks the NYSE FactSet Global Cyber Security Index with a sector focus on developed and emerging markets in the cybersecurity industry. The newest fund has an expense ratio of 0.47 percent and just over US$4 million in assets under management.

IHAK’s top holdings include Proofpoint (NASDAQ:PFPT) weighted at 4.32 percent, Symantec at 4.3 percent and Fortinet (NASDAQ:FTNT) at a 4.26 percent weighting.

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This is an update to an article originally published in 2018.

Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.

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