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 underperformed the broader market in the past year.
- The cybersecurity exchange-traded funds (ETFs) with the best one-year trailing total returns are CIBR, BUG, and IHAK.
- The top holdings of these ETFs are Zscaler Inc. for the first and third fund, and CrowdStrike Holdings Inc. Class A for the second fund, respectively.
There are four ETFs trading in the United States that focus on the cybersecurity sector, excluding inverse ETFs, leveraged ETFs, and ETFs with fewer than $50 million in assets under management (AUM): the First Trust Nasdaq Cybersecurity ETF (CIBR), the Global X Cybersecurity ETF (BUG), the iShares Cybersecurity & Tech ETF (IHAK), and the ETFMG Prime Cyber Security ETF (HACK).
The cybersecurity sector, as measured by the Nasdaq CTA Cybersecurity Index, has underperformed the broader market over the past 12 months, with a total return of -14.3% compared to the S&P 500’s total return of -8.1%, as of Sept. 13, 2022. The best-performing cybersecurity ETF, based on performance over the past year, is CIBR.
Below, we examine the three best cybersecurity ETFs for the fourth quarter (Q4) of 2022. All numbers below are as of Sept. 12, 2022. In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
- Performance Over One-Year: -12.0%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.11%
- Three-Month Average Daily Volume: 725,497
- Assets Under Management: $5.4 billion
- Inception Date: July 6, 2015
- Issuer: First Trust
CIBR is a multi-cap growth fund targeting U.S.-listed cybersecurity companies. The ETF tracks the Nasdaq CTA Cybersecurity Index. The benchmark tracks companies involved cybersecurity in the industrials and technology sectors. Each of the fund’s holdings must be classified as a cybersecurity company by the Consumer Technology Association, have a minimum market capitalization (market cap) of $250 million, and meet certain liquidity requirements. The ETF's three largest allocations are software, accounting for 59.2% of the portfolio, followed by IT services and communications equipment.
The top three holdings of CIBR include Zscaler Inc. (ZS), which specializes in securely transitioning client data from networks to the cloud; CrowdStrike Holdings Inc. Class A (CRWD), a cyberattack response, threat intelligence, and cloud cybersecurity company; and Cloudflare Inc. Class A (NET), which provides cloud firewall, IoT protection, and other security services.
- Performance Over One-Year: -13.4%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 0.7%
- Three-Month Average Daily Volume: 270,862
- Assets Under Management: $1.2 billion
- Inception Date: Oct. 25, 2019
- Issuer: Mirae Asset Global Investment Co. Ltd.
BUG tracks the Indxx Cybersecurity Index, which gauges the performance of several dozen companies that operate within the cybersecurity industry. The ETF invests in companies that focus on preventing cyber intrusions and attacks on computers, mobile devices, networks, and other areas. BUG invests in stocks across the market cap spectrum. Two-thirds of its holdings are U.S. companies, with the remaining holdings spread across Israel, Britain, Japan, South Korea, and Canada.
The top three holdings of BUG include CrowdStrike Holdings Class A.; Palo Alto Networks Inc. (PANW), a network security provider including firewalls to identify and control applications; and Zscaler.
- Performance Over One-Year: -14.7%
- Expense Ratio: 0.47%
- Annual Dividend Yield: 0.13%
- Three-Month Average Daily Volume: 63,394
- Assets Under Management: $553.2 million
- Inception Date: June 11, 2019
- Issuer: BlackRock Financial Management
IHAK tracks the NYSE FactSet Global Cyber Security Index. The benchmark tracks emerging-market and developed cybersecurity companies involved in hardware, services and other areas. Information technology stocks comprise more than 87% of the fund's assets, with the remainder in industrials. More than three-quarters of IHAK’s holdings are based in the U.S., with the rest based in Israel, Japan, Canada, and a few other countries.
The top three holdings of IHAK include Zscaler; CrowdStrike Holdings Class A.; and Booz Allen Hamilton Holding Corp. Class A (BAH), which specializes in consulting, digital technology, and cyber security company.
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