The ETFMG Prime Cyber Security ETF (HACK) is likely to enjoy increased investor interest in the wake of a U.S. air strike that killed Iran's top general, and Iran's vow to retaliate, in part, with cyber attacks. "Iran has a long history of politically motivated cyber attacks across the world," as analysts Ken Talanian and Kirk Materne observe in a note to clients. "The attacks often follow closely to changes in [U.S.] sanctions," they add.

In what appears to be an opening salvo, the homepage of the U.S. Federal Depository Library Program (FDLP) has been defaced with pro-Iranian and anti-U.S. messages, by a group calling itself the Iran Cyber Security Hackers. The Cybersecurity and Infrastructure Security Agency (CISA) within the Department of Homeland Security (DHS) is investigating. While the FDLP is a "small, under-resourced agency" in the words of one U.S. official who has chosen to comment anonymously, the DHS warns that "Iran is capable, at a minimum, of carrying out attacks with temporary disruptive effects against critical infrastructure in the United States."

Key Takeaways

  • The HACK ETF invests in cybersecurity companies.
  • Spending on cybersecurity has been growing rapidly.
  • Iran is expected to increase cyber attacks on the U.S.

HACK ETF Overview

The HACK ETF, sponsored by ETF Managers Group LLC, or ETFMG, invests in companies that offer hardware, software, and services in the cybersecurity field. It is designed to track the performance of the Prime Cyber Defense Index (PCYBER), which includes "companies actively involved in providing cyber security technology and services."

EFTMG says that HACK, launched in November 2014, is the first and largest ETF focused on the cybersecurity industry. Global spending on cybersecurity grew by 35 times from 2003 to 2016, and is projected to be $124 billion in 2019, rising to $170 billion in 2022, per technology consulting and analytics firm Gartner Inc. Meanwhile, research firm Cybersecurity Ventures is even more aggressive, forecasting total spending of $1 trillion across the 2017 to 2021 time period.

Top Holdings

The top holdings of the HACK ETF are, as of January 4, 2020: Cisco Systems Inc. (CSCO), Splunk Inc. (SPLK), Palo Alto Networks Inc. (PANW), Ping Identity Holding Corp. (PING), Fortinet Inc. (FTNT), ETFMG Sit Ultra Short ETF (VALT), FireEye Inc. (FEYE), Caci International Inc. (CACI), and Akamai Technologies Inc. (AKAM).

Performance

For the year ending January 2, 2020, the HACK ETF was up by 26.15%, but it trailed its benchmark significantly, the Prime Cyber Defense Index, which soared by 46.19%. As of noon New York time on January 6, HACK was trading at $42.68, or 2.8% above its December 31, 2019 close. The S&P 500 Index was roughly unchanged over this period.