Cyber ETFs are exchange-traded funds that invest in the stocks of companies in the cybersecurity industry. These may include those involved in the building and management of security systems designed to protect private and public computer networks. Here’s what to look for in the best cyber funds.
Why Invest in Cyber ETFs
Cybercrime is on the rise. This trend does not appear to be slowing down, which means that the businesses that help to protect against these crimes and those that aid in reacting to them are in greater demand than ever. The best way to profit from the trend in cybercrime is with cyber ETFs. Certain challenges and trends drive the demand for cybersecurity in the U.S.
High Dependence on Information Technology (IT) Systems
U.S. agencies and infrastructure sectors, such as energy, transportation systems, communications, and financial services, all depend on IT systems to process data. They carry out operations that are vital to business.
Risks to IT Systems are Increasing
Risks to IT systems can come in many forms. They can include untrained workers and new attacks. Other risks include the rapid development of technology, such as AI, as well as widespread internet and cellular connectivity.
Need to Secure Personal Info
The trend of the private sector to collect personal data, such as name, address, date of birth, and Social Security number, has been growing for decades. Securing that information is a top priority.
Best Cyber ETFs
Cybercrime is a relatively new concept, so there are only a handful of cyber ETFs out there. We highlight two that offer you exposure to the stocks of companies in the cybersecurity industry. The best index funds and ETFs often have the lowest expenses. A low expense ratio often translates to better performance over time. Many ETFs within a category invest in the same or similar securities. Our cyber candidates have the same expense ratio in this case. Funds with higher assets, compared to similar ETFs, can offer greater liquidity. Assets of $500 million or more are considered large for cyber funds. Two cyber ETFs pass our screen test when keeping these factors in mind.
ETFMG Prime Cyber Security ETF (HACK)
HACK claims to be the first and largest cyber ETF on the market. It has about $2.2 billion in assets. The portfolio consists of roughly 60 stocks that have a direct or indirect relationship to the cyber industry. Top holdings include Cloudflare Inc (NET), Cisco Systems Inc. (CSCO), Palo Alto Networks Inc. (PANW), and Fortinet Inc. (FTNT). The expense ratio for HACK is 0.60%, or $60 for every $10,000 invested.
First Trust NASDAQ Cybersecurity ETF (CIBR)
This ETF tracks the CTA Cybersecurity Index, which includes 36 stocks of companies that are mostly involved in the building, implementation, and management of cybersecurity for private and public networks, computers, and mobile devices. Assets under management are $5.5 billion. Top holdings include Palo Alto Networks Inc. (PANW), Accenture Plc (ACN), and Cisco (CSCO). Expenses for CIBR are 0.60%.
The Bottom Line
Cyber ETFs can have long-term growth potential, but the short-term market risk for funds investing in just one small sector of the market should be noted. ETFs that are highly focused on a narrow niche industry should represent just a small portion of a diversified portfolio, such as 5% to 10%. You should first determine whether they’re suitable for your risk tolerance. Assess your goals before investing in sector funds like these. The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.
