Cybercrime continues to rise globally, leading to a heightened need for solutions to deal with the threat. That's why MarketsandMarkets is forecasting that the cybersecurity market will grow from $15.66 billion in 2018 to $31.82 billion by 2023, at a compound annual growth rate (CAGR) of 15.2%. For most investors who want to take advantage of this growing market, it makes sense to invest in a wide spectrum of cybersecurity stocks through exchange-traded funds (ETFs) instead of just betting on one or two stocks. Two ETFs are specifically dedicated to cybersecurity: First Trust NASDAQ Cybersecurity ETF (NASDAQ: CIBR) and the ETFMG Prime Cyber Security ETF (NYSEARCA: HACK). The information presented here was accurate as of Oct. 2, 2018.
- Cybercrime is becoming more sophisticated, targeting individuals and businesses alike,
- The cybersecurity market is already a multi-billion industry, expected to double in just 5 years.
- Investors can gain access to this growing segment through the use of ETFs that invest in cybersecurity and related firms.
First Trust NASDAQ Cybersecurity ETF (CIBR)
The First Trust NASDAQ Cybersecurity ETF was launched in July 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 portfolio with 53.45% of its holdings, followed by the communications equipment sector at 19.23% of holdings. The top three holdings are Raytheon Company (RTN) at 6.27%, Symantec Corporation (SYMC) at 6.22% and Cisco Systems, Inc. (CSCO) at 6.17%. The fund's net assets are $848 million, with 38 stocks in the portfolio. The 30-day Securities and Exchange Commission (SEC) yield is 0.09%.
ETFMG Prime Cyber Security ETF (HACK)
The ETFMG Prime Cyber Security ETF (formerly the PureFunds ISE Cyber Security ETF) was launched in November 2014 to track the ISE Cyber Security Index, which focuses on companies developing hardware and software to protect data and those providing cybersecurity as a service. Software and IT services companies are the biggest industry sector in the fund, representing 87.73% of its holdings, followed by communications equipment at 8.88%. The top three holdings are Fortinet Inc. (FTNT) at 5.13%, Cisco Systems, Inc. at 4.67% and Palo Alto Networks Inc. (PANW) at 4.62%. The fund's net assets are $1.81 billion, with 37 stocks in the portfolio. The 30-day SEC yield is 0.01%.
Differences Between the Two ETFs
There are strong similarities between these two ETFs, but there are also some subtle differences. The ETFMG Prime 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 ETFMG Prime Cyber Security ETF is more likely to own faster-growing but riskier cybersecurity companies. In a strong market environment, the ETFMG Prime Cyber Security 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 could be a better option for investors with longer time horizons.