The global cybersecurity market is expected to expand at a healthy compound annual growth rate (CAGR) of 10.9% through 2028 as cybercrime and cyberattacks affect more individuals, companies, and governments. Investors seeking to profit from this trend may consider owning a wide spectrum of cybersecurity stocks through exchange-traded funds (ETFs). Betting on individual stocks can be especially risky in young, fast-evolving industries. Cybersecurity ETFs offer diversification across the sector, thus avoiding the risks associated with trying to pick individual winners.
- The cybersecurity industry has slightly underperformed the broader market in the past year.
- The cybersecurity ETFs with the best one-year trailing total return are BUG, CIBR, and IHAK.
- The top holding of BUG and IHAK is Fortinet Inc., and the top holding of CIBR is Zscaler Inc.
There are four ETFs trading in the U.S. that are focused on the cybersecurity sector, excluding inverse ETFs, leveraged ETFs, and ETFs with fewer than $50 million in assets under management (AUM): the Global X Cybersecurity ETF (BUG), the First Trust Nasdaq Cybersecurity ETF (CIBR), the iShares Cybersecurity and Tech ETF (IHAK), and the ETFMG Prime Cyber Security ETF (HACK).
The cybersecurity sector, as measured by the S&P Kensho Cyber Security Index, has slightly underperformed the broader market with a total return of 34.8% over the past 12 months compared to the S&P 500's total return of 35.5%, as of Aug. 11, 2021. The best-performing cybersecurity ETF, based on performance over the past year, is BUG. We examine the top three best cybersecurity ETFs below. All numbers are as of Aug. 12, 2021.
- Performance Over One-Year: 40.9%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 0.08%
- Three-Month Average Daily Volume: 336,157
- Assets Under Management: $668.2 million
- Inception Date: Oct. 25, 2019
- Issuer: Mirae Asset Global Investments Co., Ltd.
BUG tracks the Indxx Cybersecurity Index, which gauges the performance of 32 companies that operate within the cybersecurity industry. The ETF invests in companies that are positioned to benefit from the increasing adoption of cybersecurity technology, including companies that offer security against intrusion and attacks on systems, networks, applications, computers, and mobile devices.
BUG focuses on cybersecurity growth stocks across the market-cap spectrum. About three-quarters of its holdings are based in the U.S., with the remaining quarter spread across Israel, Britain, Japan, and a few other countries. Its top three holdings include Fortinet Inc. (FTNT), a provider of enterprise security solutions; Zscaler Inc. (ZS), a cloud-based information security company; and Class A shares of CrowdStrike Holdings Inc. (CRWD), a holding company whose subsidiaries provide security for the cloud era.
- Performance Over One-Year: 40.4%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.19%
- Three-Month Average Daily Volume: 546,974
- Assets Under Management: $4.4 billion
- Inception Date: July 7, 2015
- Issuer: First Trust
CIBR is a multi-cap growth fund targeting U.S.-listed cybersecurity stocks. The ETF tracks the Nasdaq CTA Cybersecurity Index, which is designed to gauge the performance of cybersecurity companies within the technology and industrials sectors. Each of the fund's holdings must be classified as a cybersecurity company by the Consumer Technology Association, have a minimum market cap of $250 million, and meet certain liquidity requirements.
CIBR's top three holdings include Zscaler Inc.; Class A shares of Accenture PLC (ACN), an Irish-domiciled management and technology consulting services provider; and Class A shares of CrowdStrike Holdings Inc.
- Performance Over One-Year: 34.2%
- Expense Ratio: 0.47%
- Annual Dividend Yield: 0.14%
- Three-Month Average Daily Volume: 112,949
- Assets Under Management: $613.1 million
- Inception Date: June 11, 2019
- Issuer: BlackRock Financial Management
IHAK tracks the NYSE FactSet Global Cyber Security Index, which is composed of cybersecurity and technology stocks with market capitalizations in excess of $225 million. Its goal is to invest in companies at the forefront of cybersecurity innovation that have strong long-term growth potential and the ability to shape the global economic future.
The vast majority of IHAK's holdings are based in the U.S., with the rest based in Israel, Japan, Canada, and Taiwan. The fund's top holdings include Fortinet Inc.; Zscaler Inc.; and DocuSign Inc. (DOCU), an electronic agreement management company.
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