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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.
Key Takeaways
- The cybersecurity industry has outperformed 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 holding for the first of these ETFs is Cisco Systems Inc., and the top holding of each of the second and third funds is Check Point Software Technologies Ltd.
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 and Tech ETF (IHAK), and the ETFMG Prime Cyber Security ETF (HACK).
The cybersecurity sector, as measured by the S&P Kensho Cyber Security Index, has outperformed the broader market over the past 12 months, with a total return of 17.8% compared to the S&P 500’s total return of 14.9%, as of March 2, 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 second quarter (Q2) of 2022. All numbers are as of March 6, 2022, except where indicated.
- Performance Over One-Year: 21.2%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.11%
- Three-Month Average Daily Volume: 1,222,315
- Assets Under Management: $6.0 billion
- Inception Date: July 7, 2015
- Issuer: First Trust
CIBR is a multi-cap growth fund targeting U.S.-listed cybersecurity stocks. The ETF tracks the Nasdaq CTA Cybersecurity Index, which is designed to gauge the performance of cybersecurity companies within the technology and industrials 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.
CIBR’s top three holdings as of March 4, 2020 are Cisco Systems Inc. (CSCO), a designer and seller of technologies across networking, collaboration, security, and the cloud; Palo Alto Networks Inc. (PANW), a network security solutions provider; and Accenture PLC (ACN), a technology, management consulting, and outsourcing service provider.
- Performance Over One-Year: 20.0%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 0.07%
- Three-Month Average Daily Volume: 362,916
- Assets Under Management: $1.2 billion
- Inception Date: Oct. 25, 2019
- Issuer: Mirae Asset Global Investments 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 are positioned to benefit from the increasing adoption of cybersecurity technology, including companies that offer security against intrusion and attacks on systems, networks, applications, computers, and mobile devices. BUG focuses on cybersecurity growth stocks across the market cap spectrum. 65% of its holdings are U.S. companies, with the remaining 35% spread across Israel, Britain, Japan, South Korea, and Canada.
Its top three holdings are Check Point Software Technologies Ltd. (CHKP), which develops and markets information technology security hardware and software solutions; Palo Alto Networks; and Fortinet Inc. (FTNT), a provider of enterprise security solutions.
- Performance Over One-Year: 7.6%
- Expense Ratio: 0.47%
- Annual Dividend Yield: 0.13%
- Three-Month Average Daily Volume: 201,953
- Assets Under Management: $587.1 million
- Inception Date: June 11, 2019
- Issuer: BlackRock Financial Management
IHAK tracks the NYSE FactSet Global Cyber Security Index, which is composed of cybersecurity and technology stocks in developed and emerging markets. Its goal is to invest in a blend of multi-cap companies at the forefront of cybersecurity innovation that have long-term growth potential. To be included in this fund’s portfolio, companies must derive 50% or more of their revenue from the cybersecurity and technology industry.
More than three-quarters of IHAK’s holdings are based in the United States, with the rest based in Israel, Japan, Taiwan, and a few other countries. The fund’s top holdings are Check Point Software Technologies; Citrix Systems Inc. (CTXS), which designs, develops, and markets information technology solutions; and Fortinet Inc., described above.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
