The global cybersecurity market is expected to expand at a healthy compound annual growth rate (CAGR) of 10.0% through 2027 as cybercrime affects 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 ETFs with the best 1-year trailing total return are BUG, CIBR, and IHAK.
- The top holdings of these ETFs are Palo Alto Networks Inc., class A shares of CrowdStrike Holdings Inc., and DocuSign Inc., respectively.
There are 4 ETFs that trade in the U.S. focused on the cybersecurity sector: the Global X Cybersecurity ETF (BUG), the First Trust NASDAQ CEA Cybersecurity ETF (CIBR), the iShares Cybersecurity and Tech ETF (IHAK), and the ETFMG Prime Cyber Security ETF (HACK). The sector, as measured by the S&P Kensho Cyber Security Index, has underperformed the broader market with a total return of 14.0% over the past 12 months compared to the Russell 1000's total return of 19.4%, as of November 30, 2020. The best-performing cybersecurity ETF, based on performance over the past year, is IHAK. We examine the top 3 best cybersecurity ETFs below. All numbers below are as of December 1, 2020.
ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs which can negate some of your investment gains or increase your losses.
- Performance over 1-Year: 33.4%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 0.64%
- 3-Month Average Daily Volume: 43,025
- Assets Under Management: $45.7 million
- Inception Date: October 28, 2019
- Issuer: Global X
BUG tracks the Indxx Cybersecurity Index, which gauges the performance of companies that operate within the cybersecurity industry. The ETF invests in companies that are positioned to benefit from increasing adoption of cybersecurity technology, including companies that offer security against intrusion and attacks on systems, networks, applications, computers, and mobile devices. The fund focuses on cybersecurity growth stocks across the market-cap spectrum. Over three quarters of its 27 holdings are based in the U.S., with the remaining quarter spread across Israel, Britain, Japan, and South Korea. Its top three holdings include Palo Alto Networks, Inc. (PANW), a provider of network security solutions; class A shares of CrowdStrike Holdings Inc. (CRWD), a holding company whose subsidiaries provide cyber security platforms; and Fortinet Inc. (FTNT), a provider of network security solutions.
- Performance over 1-Year: 29.2%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.32%
- 3-Month Average Daily Volume: 467,177
- Assets Under Management: $2.5 billion
- Inception Date: July 6, 2015
- Issuer: First Trust
CIBR is a multi-cap growth fund targeting U.S.-listed stocks. The ETF tracks the NASDAQ CTA Cyber Security Index, which is designed to gauge the performance of cybersecurity companies within the technology and industrials sectors. Each of the fund's 40 holdings must be classified as a cybersecurity company by the Consumer Technology Association, have a minimum market cap of $250 million, and must meet certain liquidity requirements. Its top three holdings include class A shares of CrowdStrike Holdings; class A shares of Okta Inc. (OKTA), a developer of applications software such as mobile identification and multifactor authentication; and Zscaler Inc. (ZS), a security software company.
- Performance over 1-Year: 27.8%
- Expense Ratio: 0.47%
- Annual Dividend Yield: 0.68%
- 3-Month Average Daily Volume: 60,935
- Assets Under Management: $165.7 million
- Inception Date: June 11, 2019
- Issuer: iShares
IHAK is a multi-cap fund focused on cybersecurity companies. The fund tracks the NYSE FactSet Global Cyber Security Index, which is composed of cybersecurity and technology stocks. The ETF invests in companies engaged in cyber security hardware, software, products, and services. Nearly 83% of the fund's 41 holdings are based in the U.S., followed by Israel (7%), Japan (4%), the U.K. (3%), and Taiwan (2%). It follows a blended strategy, investing in a mix of growth and value stocks. The fund's top holdings include DocuSign Inc. (DOCU), a provider of electronic signature solutions; class A shares of CrowdStrike Holdings; and Zscaler.
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