Best Cyber Security ETFs for 2020
Learn How to Invest in Cyber Security With ETFs
Investing in cyber security ETFs can be a smart way to profit from the growing threat of cyber crime, such as cyber attacks, data breaches and extortion. When you invest in a cyber ETF, you get exposure to a basket of the top cyber security stocks in the U.S. and around the world. Here's what to look for in the best cyber security funds.
Why Invest in Cyber Security ETFs
Cyber crime is on the rise and this trend does not appear to be slowing down. This means that the businesses that help to protect against cyber crimes and those that aid in reacting to them are in greater demand than ever. Arguably, the best way to profit from the trends in cyber crime is with cyber security exchange-traded funds, also known as ETFs.
Here are some of the cyber crime trends that will drive the demand for cyber security:
- State-Sponsored Cyber Attacks: Since 2016, Russia, North Korea and Iran have been found guilty of infiltrating government and businesses. Experts believe this new trend may be just the tip of the iceberg and state-sponsored cyber attacks are part of a new normal in the world today.
- Cyber Attacks on Universities: In March 2018, the US Department of Justice indicted nine Iranian hackers for allegedly attacking more than 300 universities across the globe, as well as several other public organisations and 47 private ones.
- Growing Number of Data Breaches: Through the middle of the year, there were already 600 known data breaches, which represents 22 million records of information. There were 1,300 data breaches in 2017 and that number is expected to grow in 2018.
- Prevalence of Cyber Liability Insurance: The fact that cyber liability insurance has recently become a mainstream offering at many major insurance companies, such as The Hartford and Insureon, demonstrates the sad reality that cyber crime and the damage it can do is real concern for businesses of all sizes.
With cyber crime 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 cyber crimes is sure to rise. In fact, Cybersecurity Ventures projects that the resulting damages will cost $6 trillion annually by 2021, up from $3 trillion in 2015. Investors can profit from this trend by investing in one of the best cyber security ETFs.
Best Cyber Security ETFs
Since cyber crime is a relatively new phenomenon, there are only a handful of cyber security ETFs available on the market. We highlight three ETFs that offer investors exposure to stocks of companies in the cyber security industry.
Generally the best index funds, which includes most ETFs, have the lowest expenses. Since many ETFs within the same category invest in the same or similar securities, a low expense ratio often translates to superior performance. Also, funds with higher assets can offer greater liquidity. This helps an investor to buy shares close to the fund's net asset value. These search criteria apply to almost all ETFs, including Cyber Security ETFs.
With that backdrop in mind, here are three cyber security ETFs to consider:
- ETFMG Prime Cyber Security ETF (HACK): With approximately $1.7 billion in assets, HACK is the largest cyber security ETF on the market. The portfolio consists of 52 stocks that have direct or indirect relation to the cyber security industry. Top holdings include Cisco Systems (CSCO), Tenable Inc (TENB), and FireEye Inc (FEYE). The expense ratio for HACK is 0.64 percent, or $64 for every $10,000 invested.
- First Trust NASDAQ Cybersecurity ETF (CIBR): This ETF tracks the CTA Cybersecurity Index, which includes 38 stocks of companies primarily involved in the building, implementation, and management of cyber security for private and public networks, computers, and mobile devices. Top holdings include Raytheon (RTN), CSCO, and Symantec Corp (SYNC). Expenses for CIBR are 0.60 percent.
- ALPS Disruptive Technologies ETF (DTEC): Investors not wanting full exposure to cyber security stocks may consider DTEC, which holds stocks of companies that are part of trends in the economy, such as advances in technology. Expenses for the DTEC ETF are 0.50 percent.
Investors considering the purchase of a cyber security ETF should keep in mind that cyber security stocks can have significant price volatility. While cyber security ETFs can have long-term growth potential, the short-term market risk should be noted. ETFs that are highly concentrated in a narrow niche industry should represent a small portion, such as 5-10 percent, of a diversified portfolio.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.