Cybersecurity stocks and the related exchange-traded funds (ETFs) are on torrid paces this year. The ETFMG Prime Cyber Security ETF (HACK), the oldest cybersecurity ETF on the market, is up nearly 24% and a confluence of factors bode well for continued upside among stocks residing in this corner of the technology sector.
Earlier this month, cybersecurity stocks and ETFs like HACK surged on news that semiconductor giant Broadcom (AVGO) is continuing its quest to diversify its product mix away from chips by acquiring cybersecurity purveyor Symantec (SYMC).
While many investors may prefer traditional, diversified technology ETFs to cybersecurity fare, there are sound fundamental reasons to consider cybersecurity ETFs for the long haul. After all, cybersecurity ETFs provide exposure to one of the truly riveting exponential growth trends on the market today.
“In 2004, the global cybersecurity market was worth $3.5 billion — and in 2017 it was expected to be worth more than $120 billion. The cybersecurity market grew by roughly 35X over 13 years entering our most recent prediction cycle,” according to CyberSecurity Ventures. “Worldwide spending on information security (a subset of the broader cybersecurity market) products and services exceeded $114 billion in 2018, an increase of 12.4 percent from 2017, according to Gartner, Inc. For 2019, they forecast the market to grow to $124 billion, and $170.4 billion in 2022.”
In addition to HACK, here are some other cybersecurity ETFs to consider.
iShares Cybersecurity and Tech ETF
Expense Ratio: 0.47%, or $47 annually per $10,000 invested
The iShares Cybersecurity and Tech ETF (IHAK) is just over a month old, making it the newest cybersecurity ETF, but it has a feather in its cap: it is also one of the cheapest cybersecurity ETFs on the market. This rookie fund tracks the NYSE FactSet Global Cyber Security Index and holds almost 40 stocks with Symantec being its largest holding.
While IHAK is a new cybersecurity ETF, it is one with potential for patient investors and one that may just be at the right place at the right time.
“The unprecedented cybercriminal activity we are witnessing is generating so much cyber spending, it’s become nearly impossible for analysts to accurately track,” notes Cybersecurity Ventures. “We anticipate 12-15 percent year-over-year cybersecurity market growth through 2021, compared to the 8-10 percent projected by several industry analysts.”
At the industry level, IHACK features exposure to providers of cybersecurity hardware, software, products and services.
BlueStar Israel Technology ETF
Expense Ratio: 0.75%
The BlueStar Israel Technology ETF (ITEQ) has gained some acclaim for being an excellent way of bringing international diversity to technology investing. While ITEQ is positioned as a diversified technology fund, it is also very much a cybersecurity ETF because Israel is one of the world’s leaders when it comes to cybersecurity services and software.
“Investments in cybersecurity firms in Israel crossed the $1 billion mark for the first time in 2018 as interest by foreign investors surged, a January report by Start-Up Nation Central, which tracks Israel’s tech industry, showed,” reports The Times of Israel. “Israel’s cyber industry is second only to that of the US, taking 20 percent of the overall venture-backed cyber investments worldwide, according to an analysis of PitchBook and Start-Up Nation Central databases.”
ITEQ’s technology focus is a difference maker. The quasi-cybersecurity ETF is up nearly 28% year-to-date, nearly double the returns of the MSCI Israel Index.
First Trust Nasdaq Cybersecurity ETF
Expense Ratio: 0.60%
The First Trust Nasdaq Cybersecurity ETF (CIBR) was the second cybersecurity ETF on the scene, and, today, the fund has nearly $1 billion in assets under management. CIBR, which turned four years old earlier this month, follows the Nasdaq CTA Cybersecurity Index. CIBR holds 44 stocks with a median market value of $3.26 billion, indicating the fund tilts toward smaller mid-cap fare.
That said, this cybersecurity ETF is home to some large-cap technology names, including Cisco Systems (CSCO) and Palo Alto Networks (PANW). Five industry groups are represented in CIBR, but the fund devotes over 56% of its weight to software makers. That is a good thing due to the rapid growth expected in the cybersecurity software market.
Additionally, many cybersecurity software makers are linked to cloud computing, another fast-growing tech segment. Due to the intersection of cloud computing and cybersecurity software, many of the companies operating in this sphere are appealing acquisition targets for larger, cash-rich technology companies. With software powering cybersecurity growth, CIBR remains a practical, long-term option among cybersecurity ETFs.
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