Investing in the stocks of a specific industry or a particular theme may be highly rewarding, but can be an equally risky proposition. The volatility in such stocks may be high in the short to medium term as they are more prone to the news flow impacting their fortunes. One is related to cyber security and those looking to invest in the stocks of companies in the sector may consider buying cybersecurity-related exchange-traded funds (ETFs). Cyber security ETFs are expected to thrive in the virus-hit economy worldwide.
According to the Internet Crime Complaint Center (IC3), a record number of complaints from the American public in 2020: 791,790 were received, with reported losses exceeding $4.1 billion. This represents a 69% increase in total complaints from 2019.
Cyber ETFs are thematic ETFs giving investors an access to a diversified basket of stocks with exposure to a specific investment or economic theme.
The largest cyber ETF, First Trust’s CIBR (CIBR), which tracks an index jointly created by Nasdaq and the Consumer Technology Association (CTA) trades around $45 million per day and has a total AUM of over $4.8 billion.
The ETFMG Prime Cyber Security ETF (HACK) is the other ETF that has a portfolio of companies providing cyber security solutions that include hardware, software and services.
Recently, in a report on the Nasdaq website, Phil Mackintosh takes a deep dive into the cybersecurity ETFs. Here are some excerpts:
As far as the growth and the potential is concerned, the report says – It’s probably not surprising that cyber ETFs have seen strong growth, as data shows that cybercrime is increasing, and with that, losses from companies affected by breaches are also growing. Furthermore, other studies show that not only is the global cybersecurity market growing but also that a majority of Chief Information Officers are prioritizing cybersecurity spending for this year, with 61% of the more than 2,000 CIOs surveyed increasing investment in cyber/information security in 2021. This positions cyber as an industry with potential long-term growth and persistent recurring revenues.
A look at the performance shows that more recently (during the pandemic), CIBR has started to outperform the broader market. The study also found that Nasdaq’s Cyber Index outperforms the broader market when data breaches occur.
The threat of cyber crimes doesn’t look to fade away in a hurry and as the world goes more digital, the need and demand for newer cyber security products will rise. Some portion of your portfolio may be considered in Cyber ETFs keeping your risk profile in context.