Best Cybersecurity ETFs for 2023
Information technology is a subject of frequent discussion among market analysts. With the rise of digital technologies, cybersecurity is becoming increasingly important, as new technology means new ways clever criminals can force their way into systems where they don’t belong.
But what exactly is cybersecurity, and what does it mean to invest in a cybersecurity ETF? Learn more about the risks and opportunities of investing in cybersecurity ETFs and a few to watch this year.
Table of Contents
- Cybersecurity ETFs are funds that trade on stock exchanges and can be bought or sold in a single transaction. These funds invest in basket stocks belonging to companies active in the cybersecurity industry
- The global cyber security market is expected to grow to more than $345 billion by 2026. Cybersecurity sector revenues are expected to continue growing by around 10-13% per year in the coming decade
- Data breaches are costly for companies, averaging around $10 million in damages per incident. Nearly every company makes use of digital technology, and is thus in need of cybersecurity solutions
- As with any form of investing cybersecurity ETFs can present a higher level of volatility if there are some major issues with a cybersecurity company stock within the ETF.
What Are Cybersecurity ETFs
An Exchange-Traded Fund (ETF) invests in a basket of stocks. Buying an ETF means buying into all of its constituent companies at once. This allows investors to diversify their portfolio and receive exposure to the cybersecurity sector, rather than trying to identify individual cybersecurity stocks to purchase.
The cybersecurity industry encompasses all the companies which provide services or offer products related to cybersecurity. Cybersecurity is the area of information technology which focuses on the safety of digital systems and the prevention of intrusion and sabotage attempts by hackers.
The cybersecurity sector is often segmented into sub-sectors which focus on specific domains of cybersecurity like network security, endpoint security, application security, and cloud security, among others. Many industries are consumers of cybersecurity solutions.
Best Cybersecurity ETFs to Watch
Investors should keep in mind that what constitutes the ‘best’ cybersecurity ETF is different for each investor and depends on their personal financial situation and goals. Investors would do well to perform their own research on cybersecurity ETFs to determine what options are suitable for their own investment portfolio.
Here is the list of some of the best cybersecurity ETFs to watch:
- L&G Cyber Security ETF - Broad Basket of Cybersecurity Stocks
- First Trust NASDAQ Cybersecurity ETF - CTA Cybersecurity Index Tracker
- ETFMG Prime Cyber Security ETF - The First Cybersecurity ETF to be Launched
Let's take a look at each one individually.
L&G Cyber Security ETF - Broad Basket of Cybersecurity Stocks
The L&G Cyber Security ETF was created in 2015 and currently has around $2.5 billion in assets under management. The fund is issued by Legal & General Investment Management, which is one of Europe’s largest asset managers.
The fund tracks the ISE Cyber Security UCITS Index. This index tracks a basket of stocks belonging to companies which are active in the cyber security industry by either “(1) providing infrastructure through the development of hardware and software for safeguarding internal and external access to files, websites and networks; or (2) providing services related to cyber security and cyber security consulting.”
The top ten companies by the size of asset allocation included in this fund are Fastly (6%), Qualys (4.8%), Akamai Technologies (4.7%), Darktrace (4.6%), Splunk (4.5%), CrowdStrike (4.4%), Cisco Systems (4.4%), SentinelOne (4.4%), Gen Digital Inc (4.3%), and Check Point Software Technologies (4.3%).
Roughly 94% of the fund’s assets are allocated to companies within the Information Technology sector. Communication Services account for ~4%, and Industrials ~2%.
The fund trades on the London Stock Exchange, the Deutsche Börse Xetra, the Bolsa Mexicana, Euronext Amsterdam, and the SIX Swiss Exchange. With Admirals, you can invest in the L&G Cyber Security UCITS ETF (ISPY).
First Trust NASDAQ Cybersecurity ETF - CTA Cybersecurity Index Tracker
The First Trust Nasdaq Cybersecurity ETF tracks the Nasdaq CTA Cybersecurity Index. This index tracks companies engaged in the cybersecurity subsector, which includes companies “involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices in order to provide protection of the integrity of data and network operations.” To be included, a security must be classified as a cybersecurity company by the Consumer Technology Association (CTA), and have a market capitalization of at least $500 million.
The top ten holdings of this fund by size of capital allocation are Palo Alto Networks (~6.5%), Cisco Systems (~6.4%), Infosys Limited (~6.4%), Broadcom (~6%), Fortinet (~5.15%), Splunk (~3.5%), Leidos Holdings (~3.4%), Zscaler (~3.3%), Science Applications International Corporation (~3.2%), and Akamai Technologies (~3.2%).
The market sectors invested in by this fund are by the size of capital allocation: Software (~50%), IT Services (~17%), Communications Equipment (~13.5%), Professional Services (~9.9%), Semiconductors and Semiconductor Equipment (~6%), and Aerospace & Defense (~3%).
The fund trades under the ticker symbol ‘CBRS’ on the Deutsche Börse XETRA. It also has a listing under ‘CIBR’ on the Borsa Italiana and the London Stock Exchange. With Admirals, you can trade the First Trust NASDAQ Cybersecurity ETF CFD (contracts for difference) which allows you to trade long and short.
ETFMG Prime Cyber Security ETF - The First Cybersecurity ETF to be Launched
The ETFMG Prime Cyber Security ETF was launched in 2014 as one of the first ETFs targeting the cyber security sector. ETF Managers Group (ETFMG) managed to gain the ticker symbol ‘HACK’ for this fund, which is appropriate, given the fund’s investment objectives. The fund aims to track the Prime Cyber Defense Index, which includes companies that offer hardware, software and services related to cyber security.
These companies are divided into those that offer infrastructure on the one side and those that offer services related to cyber security on the other. The fund’s assets are divided among these two sectors by a market-capitalisation weighting. The fund uses equal weights for the stocks within each subsector.
The top ten holdings of this fund by the size of capital allocation are Splunk (~5%), ZScaler (~4.9%), Okta (~4.8%), Akamai Technologies (~4.8%), Palo Alto Networks (`~4.7%), Cisco Sys (~4.7%), Booz Allen Hamilton HLDG Corp (~4.7%), Leidos Holdings (~4.6%), Bae Systems (~4.6%), and CrowdStrike Holdings (~4.4%). The fund has around $1.5 billion in assets under management.
The sub-sectors covered by this fund are mainly Systems Software (~40%), Internet Services & Infrastructure (~16%), Research & Consulting Services (~14%), and Communications Equipment (~12%). Aerospace & Defense (~7%), and Application Software (6%) make up the rest.
The fund trades under the ticker symbol ‘HACK’ on the NASDAQ Exchange. With Admirals, you can trade the ETFMG Prime Cyber Security ETF CFD which allows you to trade long and short.
How to Invest in ETFs
With Admirals, you can invest in global stocks and ETFs with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission.
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission.
- Germany and France stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission
You can learn more about investing commissions on the Admirals Contract Specification page. You can search for global stocks and ETFs from the Invest.MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Conclusion: Pros & Cons of Investing in Cybersecurity ETFs
Cybersecurity is a fast-growing industry and any investor might find themselves wondering whether they might want to include a cybersecurity ETF in their portfolio. This section covers the pros and cons of investing in cybersecurity ETFs or cybersecurity-related stocks.
In terms of advantages, the outlook regarding the future of the cybersecurity industry is positive. Many analysts expect the industry to grow rapidly in the coming years because as the world becomes increasingly connected through digital means, more and more malicious actors attempt to break into systems to steal valuable personal data and business information.
The relevance of the cybersecurity industry is therefore directly tied to the global reliance on digital technology, which is expected to keep rising in the coming decades. Investing in cybersecurity can be a way of indirectly capturing the growth related to the information technology sector.
In terms of disadvantages, the success of cybersecurity companies is inherently tied to the digital safety of their products and services. If a company in this sphere becomes the target of a successful hack – a risk which always looms - then the resulting sell-off by scared investors can hit the respective company’s stock price.
When a hack will happen and who will be targeted is incredibly hard to predict, meaning investors will most likely be unable to avoid these dips in their cyber security portfolio, presenting a higher degree of volatility in their portfolios.
- Top 4 Cybersecurity Stocks to Watch
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- How to Trade ETFs with €1,000
- The CFD Trading Guide
FAQs on Best Cybersecurity ETFs
Does Vanguard have a cybersecurity ETF?
Vanguard does not currently issue an ETF specifically focused on the cybersecurity sector. Vanguard does offer the Vanguard Information Technology ETF (VGT), which consists of stocks related to Information Technology in general.
What is the best ETF for cybersecurity?
Which ETF is the ‘best’ for a given investor is dependent on the investor’s personal situation and financial goals. The largest cybersecurity-related ETF is the First Trust Nasdaq Cybersecurity ETF (CIBR).
What is the difference between bug and hack ETF?
The biggest difference is in the number of constituents: HACK contains 56 companies, and BUG merely 24. Additionally BUG is tilted more strongly towards cybersecurity, specifically software solutions, and HACK contains companies which don’t solely focus on cybersecurity like Akamai Technologies and Cisco.
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