Investing in cybersecurity exchange-traded funds, also known as ETFs, can be a smart way to profit from the growing threat of cybercrime. These crimes include cyberattacks, data breaches, and extortion. You get exposure to a basket of the top cyber stocks in the U.S. and around the world when you invest in a cyber ETF.
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.
Some of the better-known companies involved in the cybersecurity industry include Cisco Systems, Inc (CSCO) and Cloudfare Inc (NET).
Why Invest in Cyber ETFs
Cybercrime is on the rise. This trend does not appear to be slowing down. This 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 Info 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 trend 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 goal.
The demand for the products and services for the prevention and recovery of these crimes is sure to rise with no end in sight. You can profit from it by investing in one of the best cyber ETFs.
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 thought to be large for cyber funds.
Two cyber ETFs pass our screen test when keeping these factors in mind.
HACK claims to be the first and largest cyber ETF on the market. It has about $1.119 billion in assets. The portfolio consists of 55 stocks that have a direct or indirect relation to the cyber 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. The index includes 42 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 $1.26 billion.
Top holdings include Okta, Inc (OKTA), Cisco (CSCO), Splunk (SPLK), and 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 if they're suitable for your risk tolerance. Assess your goals before investing in sector funds like these.
NOTE: The Balance doesn't provide tax or investment services or advice. This information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any one investor. It might not be right for all investors. Investing involves risk, including the loss of principal.