Investing in Cybersecurity ETFs | The Motley Fool


Cybersecurity is a huge challenge. According to IBMit’s (NYSE: IBM) Cost of a Data Breach 2021, the average cost incurred by an organization that suffered a data breach last year increased by 10% to $4.2 million. Regular migration to a cloud-based IT infrastructure and a hybrid workforce that spends a lot of time out of the office don’t make security any easier. As a result, cybersecurity is a large and rapidly growing industry.

But choosing the best cybersecurity stocks can be tricky. Cybersecurity is a big part of the technology space, and every sector of the economy needs software to keep critical data and systems secure. Many companies operate in this niche, each with their own vision of structuring a security platform. That’s why investing in a cybersecurity ETF (exchange-traded fund) can make sense.

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6 Best Cybersecurity ETFs for 2022

Given the growing demand for cybersecurity, it’s no surprise that there are a number of ETF options to choose from. Here are the top picks for 2022 and beyond.

Exchange Traded Fund

Number of shares in the fund

Annual expense ratio

Assets under management

Dividend yield

Nasdaq First Trust Cyber ​​Security ETF (NASDAQ: CIBR)

35

0.6%

$5.6 billion

0.2%

ETFMG Prime Cyber ​​Security ETF (NYSEMKT:HACK)

62

0.6%

$1.9 billion

0.2%

Global X Cybersecurity ETF (NASDAQ: BUG)

31

0.5%

$1.1 billion

0%

iShares Cybersecurity and Technology ETF (NYSEMKT:IHAK)

52

0.47%

$568 million

0.5%

WisdomTree Cybersecurity Fund (NASDAQ: WCBR)

27

0.45%

$35 million

0.6%

Vanguard Information Technology ETFs (NYSEMKT:VGT)

359

0.1%

$55.6 billion

0.65%

Data source: First Trust, ETF Managers Group, Global X, WisdomTree, iShares and Vanguard. Data as of March 15, 2022.

1. First Trust NASDAQ Cybersecurity ETF

With nearly $5.6 billion in assets under management, the First Trust NASDAQ Cybersecurity ETF is by far the largest pure-play ETF in this part of the technology sector. First Trust is a large financial services company offering a variety of investment products, and its cybersecurity offering is one of the oldest in the ETF world. Its inception dates back to 2015 and the fund’s shares have more than doubled since then.

The First Trust Cybersecurity ETF is currently made up of 35 cybersecurity company stocks, almost all of which are listed on a US stock exchange. A handful of stocks are in adjacent industries, such as aerospace and defense, where security services feature prominently. At the time of this writing, the top three holdings (which make up around 20% of the fund’s assets) are large tech companies. Cisco Systems (NASDAQ: CSCO), Palo Alto Networks (NASDAQ: PANW)and Accenture (NYSE:ACN). The ETF is rebalanced quarterly and has an annual expense ratio of 0.6% ($6 in fees are deducted from the fund’s performance each year for every $1,000 invested).

2. ETFMG Prime Cyber ​​Security ETF

ETF ETFMG Prime Cyber ​​Security ETF has also been around since 2015 and has amassed $1.9 billion in assets. It is also rebalanced quarterly, has an annual expense ratio of 0.6%, and has more than doubled in value since inception.

The big difference between this and First Trust’s offering, however, is that the ETFMG Prime Cyber ​​Security ETF is made up of 62 stocks. This means much less portfolio concentration of big industry names and more of the fund’s investments spread across smaller companies and international investments. This broader exposure might appeal to some investors, but the strategy has underperformed the First Trust fund since 2015.

3. Global X Cybersecurity ETF

The relatively new Global X Cybersecurity ETF was launched in late 2019. It quickly attracted over $1.1 billion in investor funds and has outperformed both First Trust and ETFMG since its launch.

The Global X Cybersecurity ETF is one of the most concentrated on this list, with just 31 stocks. It is heavily geared towards large cybersecurity software companies. At the time of this writing, Checkpoint Software (NASDAQ:CHKP)Palo Alto networks and NortonLifeLock (NASDAQ:NLOK) represent nearly a quarter of the fund’s total assets. Like the other ETFs here, the Global X product pays little dividend since the cybersecurity industry is primarily focused on growth. However, it has surpassed its peers in its short history.

4. iShares Cybersecurity and Tech ETF

Also launched in 2019, the iShares Cybersecurity and Tech ETF comes from one of the largest financial institutions in the world, black rock (NYSE:BLK). It is made up of 52 different stocks of cybersecurity companies and other technology companies involved in cybersecurity, and its annual fee is lower than many of its peers, at just 0.47%.

During its brief existence, the iShares Cybersecurity and Tech ETF underperformed other funds in the cybersecurity space. But since it has a limited history, that could change. This ETF is also not the most security-focused ETF. It has a handful of cloud computing names that are in security-adjacent niches, such as the cloud infrastructure company vmware (NYSE: VMW)network equipment designer Juniper Networks (NYSE: JNPR)and digital document signing service DocuSign (NASDAQ: DOCU).

5. WisdomTree Cybersecurity Fund

The WisdomTree Cybersecurity Fund is the newest ETF on this list, with an inception date of January 2021. Tech stocks – including many cybersecurity names – have been hit hard since then, and WisdomTree’s product reflects that, with a negative return since inception. . However, while the company has only amassed around $35 million in assets so far, it offers a competitively priced offering at just 0.45% annual fees.

This ETF is also the most concentrated fund here and is spread across just 27 cybersecurity stocks. With nearly 8% of the fund at the time of this writing, Palo Alto Networks is by far the largest holding company. Data Analysis and Cybersecurity Monitoring Team Datadog (NASDAQ:DDOG) and cybersecurity and compliance software publisher Quick7 (NASDAQ: RPD) complete the first three places. The shares of this ETF are rebalanced twice a year.

6. Vanguard Information Technology ETF

Vanguard, whose founder Jack Bogle invented the index fund in 1976, does not have a specific ETF solely focused on cybersecurity. However, the Vanguard Information Technology ETF is worth mentioning. It’s a general index of the US tech sector and is full of cybersecurity companies and other big companies involved in security in one form or another.

With an annual expense ratio of just 0.1% and a total of 359 holdings, the Vanguard Information Technology ETF is a great way for investors to gain passive exposure (since holdings are not rebalanced) to the development of cybersecurity, as well as other technology growth trends. such as cloud computing and semiconductor designers. The fund has been around since 2004 and averages just over 13% annually.

Cybersecurity is a long-term investment

With computer technology infiltrating every corner of the global economy, cybersecurity is poised to be one of the most significant secular growth trends of the next decade and beyond. Individual stocks that develop security technology services will be volatile, but investing in a basket of them could generate significant long-term returns. An ETF is a quick and easy way to gain investment portfolio exposure to this critical segment of the technology sector.

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