The "ransomware" attacks have put cybersecurity stocks back in the spotlight. Other recent events that spurred investor interest in these stocks were the Yahoo data breaches and the hacking of the Democratic Party's emails.

Cybercrime is on the rise globally, leading to a heightened need for cybersecurity solutions and a proliferation of new companies that deal with the threat. The cost of fighting cybercrime is escalating because the attacks are becoming more complicated to resolve. According to the Center for Strategic and International Studies (CSIS), cybercrime could cost the global economy up to $575 billion annually. That's why the cybersecurity market is forecast to grow at a compound annual growth rate (CAGR) of 10.3%, from $95.6 billion in 2014 to $155.74 billion by 2019.

Two exchange-traded funds (ETFs) dedicated to cybersecurity stocks have been launched since 2014. For most investors, it makes sense to invest in a wide spectrum of cybersecurity stocks through an ETF instead of just betting on one or two cybersecurity stocks. 

First Trust NASDAQ Cybersecurity ETF

The First Trust NASDAQ Cybersecurity ETF (CIBR) was launched in June 2015 to track the NASDAQ CTA Cyber Security Index, which focuses on companies building and managing the security protocols of private and public networks, computers and mobile devices. Software companies dominate the ETF with a portfolio weighting of 57.54%, followed by the communications equipment sector at 18.14%. The top three holdings are Check Point Software Technologies Ltd. (CHKP) with a weighting of 6.62%, Symantec Corporation (SYMC) with a weighting of 6.61%, and Cisco Systems, Inc. (CSCO) with a 5.96% weighting. The fund held $219.5 million in assets as of May 11, 2017, with 30 stocks in the portfolio. The 30-day Securities and Exchange Commission (SEC) yield as of April 28, 2017 was 0.15%.

PureFunds ISE Cyber Security ETF

The PureFunds ISE Cyber Security ETF (HACK) was launched in November 2014 to track the ISE Cyber Security Index, which focuses on companies developing hardware and/or software to protect digital files, networks and websites. Systems software companies are the biggest industry sector in the fund with a 64.19% portfolio weighting, followed by communications equipment at 15.12%. The top three holdings are FireEye Inc. (FEYE) with a 4.91% weighting, Qualys Inc. (QLYS) with a 4.44% weighting and Imperva Inc. (IMPV) with a 4.36% weighting. The fund held assets of $967.5 million as of May 12, 2017, with 35 stocks in the portfolio. The 30-day SEC yield as of May 5, 2017 was -0.02%.

Differences Between the Two ETFs

There are strong similarities between these two ETFs, but there are also some subtle differences. The PureFunds ISE Cyber Security ETF, which is the more established fund, includes companies that have market capitalizations as low as $100 million, while the First Trust NASDAQ Cybersecurity ETF established a minimum market capitalization of $250 million for the companies in its portfolio.

Based on these criteria, the PureFunds ISE Cyber Security ETF is more likely to own faster-growing but riskier cybersecurity companies. In a strong market environment, the PureFunds ETF could well outperform, making it a good candidate for investors looking for short-term plays. The First Trust NASDAQ Cybersecurity ETF has more exposure to larger companies that may be less volatile, and it is well-situated for investors with longer time horizons. 

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