EXECUTIVE SUMMARY:
People and technology are more interconnected than ever before, and with that, we’ve seen an acute need for cyber security. Data breaches have reached unprecedented levels and seem to have no end in sight. Private business data, employee data, and consumer data are now scattered about the dark web; for sale or liable to be used for unscrupulous and unintended purposes.
In 2022, the global cost of cyber crime reached $8.4 trillion. In 2023, that number is expected to surpass the 11 trillion dollar mark. Adequate cyber security is indispensable for the continued advancement of the global economy and for continuous individual well-being. Focusing on breach prevention is essential.
Because of cyber security’s far-reaching implications, cyber security will be an important growth area across the next decade. If you are a retail investor, that’s why investing in a cyber security fund might make sense for you. While individual stocks can be volatile, investing in a basket of cyber security ETFs could provide stability. Cyber security ETFs represent an efficient and effective way to get investment portfolio exposure to this booming sector.
What is a cyber security ETF?
Exchange-traded funds (ETFs) are investment products that track a sector, commodity or index. An ETF consists of an assortment of investments, such as stocks, bonds and commodities. A cyber security ETF will include stocks belonging to companies within the cyber security industry.
Cyber security ETF selection: Insights
In choosing a cyber security ETF, consider the following:
- Consider exploring a fund’s Morningstar Category and actual holdings for a clear understanding of exactly what you’re potentially buying. ETFs that appear similar on the surface may actually be quite different from one another.
- Costs matter. The best index funds and ETFs often retain the lowest expenses. A low expense ratio commonly translates to higher performance levels over time.
- Ask yourself the following three questions ahead of selecting a cyber security ETF: ‘What exposure does this ETF have?’ ‘How effectively does this cyber security ETF deliver this exposure?’ and ‘What does accessing this ETF look like?’
- Investigate whether or not there are extended lengths of time during which the ETF outperforms or underperforms an index. This could provide either positive or negative signals, depending on the root causes of results.
- See if there is a reasonable trading volume.
- Also be sure to review a fund’s track record. Has the ETF succeeded in gathering assets? In the event that an ETF has fewer than $20 million under management, it may eventually be closed by its sponsor.
Cyber security ETF examples
1. First Trust NASDAQ Cybersecurity ETF. This ETF consists of 35 different cyber security company stocks. The fund retains nearly $5.6 billion in assets under management, and represents the largest pure-play ETF in this segment of the tech sector.
The First Trust cyber security offering is one of the longest-tenured ETFs globally, with an inception date in 2015. Since the fund’s creation, shares of the fund have more than doubled.
2. Global X Cybersecurity ETF. A comparatively new fund, the Global X cyber security ETF was launched in 2019. The fund quickly attracted over $1.1 billion in investor funds, and has shown better performance than the First Trust NASDAQ fund.
3. ETFMG Prime Cyber Security ETF. This ETF has amassed $1.9 billion in assets and consists of 62 different stocks. This translates to less portfolio concentration of top brands in the industry, and a greater focus on smaller companies and international investments.
4. iShares Cybersecurity and Tech ETF. This ETF is composed of 52 different cyber security stocks and includes stocks belonging to other tech companies that participate in the cyber security space. Beyond that, this ETF includes cloud computing firms that are in security-adjacent areas.
In summary
As part of a long-term investment strategy, selecting top cyber security ETFs can be a smart choice. They can serve as the basis of a well-diversified portfolio.
A quick reminder: All investors should perform their own diligence, assess their own risk tolerance, invest responsibly, and ensure that investments align with financial goals. This article is not an endorsement of any specific investment strategies or cyber security ETFs.
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