Best Cybersecurity ETFs for 2020
Investing in Cybersecurity ETFs and Which Are the Best to Buy Now
Investing in cybersecurity ETFs can be a smart way to profit from the growing threat of cybercrime, such as cyberattacks, data breaches, and extortion. When you invest in a cyber ETF, you get exposure to a basket of the top cybersecurity stocks in the U.S. and around the world. Here's what to look for in the best cybersecurity funds.
Cybersecurity ETFs are exchange-traded funds that invest in stocks of companies in the cybersecurity industry. These companies may include those involved in the building and management of security systems designed to protect private and public computer networks.
Some of the better-known companies involved in the cybersecurity industry include Cisco Systems, Inc (CSCO) and Cloudfare Inc (NET).
Why Invest in Cybersecurity ETFs
Cybercrime is on the rise and this trend does not appear to be slowing down. This means that the businesses that help to protect against cybercrimes and those that aid in reacting to them are in greater demand than ever. Arguably, the best way to profit from the trends in cybercrime is with cybersecurity exchange-traded funds, also known as ETFs.
Here are cybercrime challenges and trends that drive the demand for cybersecurity in the U.S.:
- High dependence on information technology (IT) systems: Federal agencies and US infrastructure sectors, such as energy, transportation systems, communications, and financial services all depend on IT systems to process data and to carry out operations essential to business.
- Risks to IT systems are increasing: Risks to IT systems can come in many forms, such as untrained employees, the emergence of new attacks, and rapid development of new technology, such as artificial intelligence and widespread Internet and cellular connectivity.
- Need to secure personal information: The private-sector trend of collecting personal information, such as name, address, date of birth, and Social Security number, has been growing for decades. Securing that information is a top priority.
With cybercrime on the rise and no end in sight to this disturbing trend, the demand for the products and services for the prevention and recovery of cybercrimes is sure to rise. Investors can profit from this trend by investing in one of the best cybersecurity ETFs.
Best Cybersecurity ETFs
Since cybercrime is a relatively new phenomenon, only a handful of cybersecurity ETFs is available. We highlight two ETFs that offer investors exposure to stocks of companies in the cybersecurity industry.
Generally, the best index funds (and ETFs) have the lowest expenses. Since many ETFs within a category invest in the same or similar securities, a low expense ratio often translates to superior performance over the long run. In this case, our cybersecurity candidates have the same expense ratio.
Also, funds with higher assets in relation to similar ETFs can offer greater liquidity. For cybersecurity funds, assets of $500 million or higher would be considered large.
With those criteria in mind, there are two cybersecurity ETFs that pass our screen test:
With approximately $1.119 billion in assets, HACK claims to be the first and largest cybersecurity ETF on the market. The portfolio consists of 55 stocks that have a direct or indirect relation to the cybersecurity industry.
Top holdings include Cisco Systems Inc (CSCO), Cloudflare Inc (NET), Qualys Inc (QLYS) and Akamai Technologies Inc (AKAM). The expense ratio for HACK is 0.60% or $60 for every $10,000 invested.
This ETF tracks the CTA Cybersecurity Index, which includes 42 stocks of companies primarily involved in the building, implementation, and management of cybersecurity for private and public networks, computers, and mobile devices. Assets under management are $1.26 billion.
Top holdings include Okta, Inc (OKTA), Cisco (CSCO), Splunk (SPLK), and expenses for CIBR are 0.60%.
The Bottom Line
While cybersecurity ETFs can have long-term growth potential, the short-term market risk for funds investing in just one small sector of the market should be noted. ETFs that are highly concentrated in a narrow niche industry should represent a small portion, such as 5% to 10%, of a diversified portfolio. Before investing in sector funds like these, investors should first determine if they are suitable for their risk tolerance and investment goals.
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.
EFTMG. "ETFMG Prime Cyber Security ETF." Accessed April 17, 2020.
First Trust. "First Trust Nasdaq Cybersecurity ETF (CIBR)." Accessed April 17, 2020.