Best Cybersecurity ETFs: A hack to a booming industry

The great Warren Buffet once said, “Invest in what you know…and nothing more”. This is a small glimpse of wisdom from the Oracle of Omaha, and it’s hard to disagree with him, considering we spend most of our careers working in no more than a handful of different industries.

However, most problems that happen in our daily lives enlighten us about certain things, especially as investors. We tend to think outside the box and wonder: “If there’s a problem… then who’s trying to fix it?”.

Well, a cyberattack is one of those problems. Individuals or criminal organisations try to steal our digitally stored data for their own benefits, and it happens very often. According to the Identity Theft Resource Centre, 170 million individuals in 2020 were affected by some sort of cyberattack. And yes, that person could be you!

“There are only two types of companies: those that have been hacked, and those that will be.” – Robert Mueller, FBI Director, 2012

Fortunately, there are hundreds of hero companies around the world trying to keep our data safe and private. They operate in a booming high-tech industry called Cybersecurity.

The global pandemic has taken the digital economy to a whole level with the normalisation of remote work, increased adoption of digital tools and boost in ecommerce activity. The change has given cyber criminals more business and consumer data to prey on, causing major network disruptions that translate to huge financial losses.

Cyberattacks result in huge financial losses

To illustrate how “huge” we’re talking about, we put together some of the industry’s latest insights:

• Data breach costs rose from $3.86 million in 2020 to $4.24 million in 2021 (IBM, “Cost of Data Breach Report 2021)
• Cybercrime damages will cost the world $6 trillion annually by 2021, up from $3 trillion in 2015 (Cybersecurity Venture, 2021)

Fighting the invisible enemy with technology and services

As cyberattacks increase, so will the efforts to combat them. Earlier this year, research firm Garner forecasted that worldwide spending on information security and risk management technology and services will grow 12.4% to reach $150.4 billion in 2021.

Source: Gartner (May 2021)

Governments globally are prioritizing cybersecurity

Cyberattacks pose a threat to individuals and corporations, but also to governments. They have also prioritised cybersecurity due to surging cases of cyberattacks from enemy countries, terrorists, and so-called hacktivists.

In July, joint statements released by the United States, the European Union, NATO and other global powers condemned the Chinese government for a series of malicious cyber activities. They blamed China for the Microsoft Exchange hack from early 2021 and the compromise of more than 100,000 servers worldwide.

Events like this have urged the U.S. government to increase budget spending on cybersecurity from $13bn in 2017 to $18bn in 2021 and the ladder is expected to grow with more threats looming from overseas.

The importance of the threats was also depicted by the recent high-profile cybersecurity meeting between President Joe Biden and CEOs from major companies including Amazon, Apple and Microsoft. The discussion was about how the public and private sectors can work collectively to improve the nation’s cybersecurity.

Taking all the above-mentioned factors into consideration, investing in the cybersecurity industry seems like a potential lucrative long-term investment opportunity. So what’s next?

Cybersecurity firms are getting a piece of the action

There are many successful cybersecurity firms out there that may scream “buy me”. On one hand, there are companies like McAfee, Cisco and IBM have long been investor’s portfolio jewels and rewarded their “Hodlers” historically with capital appreciation and dividend payments. They are well established cash cows with strong safety cushions.

On other hand, there are the likes of Cloudflare, Zscaler and CrowdStrike, the relatively new rising stars in the industry with impressive growth and increased attention.

With all these choices lying around, picking a winner among these can be a lengthy task and may not be everyone’s cup of tea. Fortunately, there are several Cybersecurity ETFs that can relieve you from that burden. You can now own a curated basket of the world’s finest cybersecurity firms with one easily executed trade.

The six largest Cybersecurity ETFs

First Trust Nasdaq Cybersecurity ETF (CIBR)

• Largest Cybersecurity ETF with $4.8bn in assets
• Launched on July 6th, 2015
• NASDAQ is the Primary Exchange
• Expense ratio of 0.60%
• Benchmark Index is the Nasdaq CTA Cybersecurity Index
• A $10,000 invested on July 30th, 2016 would be worth $26,529 on August 27th, 2021
• Quarterly dividends payment with 0.88% yield
• 39 Holdings
• Top 10 holdings constitute ~50% of the portfolio
• Top 3 holdings are Zscaler Inc. (7.46%), CrowdStrike (6.72%) and Accenture PLC (6.29%)
• Top geography exposure is U.S.A (93%)

ETFMG Prime Cyber Security ETF (HACK)

• Second largest Cybersecurity ETF with $2.44bn in assets
• Launched on November 11th, 2014
• NYSE ARCA is the Primary Exchange
• Expense ratio of 0.60%
• Benchmark Index is the Prime Cyber Defense Index
• A $10,000 invested on November 30th, 2014 would be worth $25,872 on August 27th, 2021
• Quarterly dividends payment with 0.78% yield
• 62 holdings
• Top 10 holdings constitute ~30% of the portfolio
• Top 3 holdings are Cisco (3.24%), Cloudflare (3.21%) and Fortinet Inc. (3.09%)
• Top geography exposure are U.S.A (77%), U.K. (10%) and Israel (5%)

Global X Cybersecurity ETF (BUG)

• Third largest Cybersecurity ETF with $745 million in assets
• Launched on October 25th, 2019
• NASDAQ is the Primary Exchange
• Expense ratio of 0.50%
• Benchmark Index is Indxx Cybersecurity Index
• A $10,000 invested on October 31st, 2019 would be worth $21,424 on August 27th, 2021
• Semi-Annual dividends payment with 0.35% yield
• 32 holdings
• Top 10 holdings constitute ~58% of the portfolio
• Top 3 holdings are Zscaler Inc. (7.62%), Fortinet Inc. (7.18%) and CrowdStrike Holdings (7.12%)
• Top geography exposure are U.S.A (75%), Israel (12%) and UK (8%)

iShares Cybersecurity and Tech ETF (IHAK)

• Fourth largest Cybersecurity ETF with $661 million in assets
• Launched on June 11th, 2019
• NYSE ARCA is the Primary Exchange
• Expense ratio of 0.47%
• Benchmark Index is the NYSE FactSet Global Cyber Security Index
• A $10,000 invested on June 30th, 2019 would be worth $18,594 on August 27th, 2021
• Semi-Annual dividends payment with 0.50% yield
• 42 holdings
• Top 10 holdings constitute ~44% of the portfolio
• Top 3 holdings are Zscaler Inc. (5.26%), Fortinet Inc. (5.03%) and CrowdStrike Holdings (4.94%)
• Top geography exposure are U.S.A (80%), Israel (7.8%) and Japan (4.05%)

BetaShares Global Cybersecurity ETF (HACK -ASX)

• Fifth largest Cybersecurity ETF with $479 million in assets
• Launched on August 30th, 2016
• Australian Securities Exchange (ASX) is the Primary Exchange
• Expense ratio of 0.67%
• Benchmark Index is the Nasdaq CTA Cybersecurity Index
• A $10,000 invested on August 30th, 2016 would be worth $27,169 on August 27th, 2021
• Semi-Annual dividends payment
• 39 holdings
• Top 10 holdings constitute ~51% of the portfolio
• Top 3 holdings are Zscaler Inc. (7.50%), CrowdStrike Holdings (6.70%) and Accenture PLC (6.30%)
• Top geography exposure are U.S.A (90%), Israel (3.6%) and U.K. (2.90%)

Rize Cybersecurity and Data Privacy ETF (RCRS)

• Sixth largest Cybersecurity ETF with $117 million in assets
• Launched on February 12th, 2020
• Listed on several European Exchanges (LSE/BORSAITALIANA/XTRA/EURONEXT/SIX)
• Expense ratio of 0.45%
• Benchmark Index is the Foxberry Tematica Research Cybersecurity and Data Privacy Index
• A $10,000 invested on February 28th, 2020 would be worth $15,489 on August 27th, 2021
• Accumulating dividends
• 54 holdings
• Top 10 holdings constitute ~35% of the portfolio
• Top 3 holdings are Cloudflare Inc. (3.72%), Zscaler (3.67%) and Fortinet inc. (3.58%)
• Top geography exposure are U.S.A (75%), Japan (9.6%) and U.K. (5.6%)

What do the Cybersecurity ETFs have in common?

• All enjoyed a great run since inception
• Most regional exposure is to U.S. and Israeli companies, which is not surprising due to the large threats they receive from their respective enemies. More threats equal more investments, more investments mean improved cyber tech and launch of new companies.
• They share some the same top 10 holdings
• Expense ratio 0.4-0.6%
• Liquid and easy to trade

But wait there’s more….

• WisdomTree Cybersecurity Fund (WCBR)
• Simplify Volt Cloud and Cybersecurity Disruption ETF (VCLO)
• See all cybersecurity ETFs in our screener

Now that we have provided some insights on the nascent industry, investors should perform their own diligence and invest responsibly.

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