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Capitalizing on Growing Cyber Threats Made Possible by Cybersecurity ETFs

We live in an increasingly online world. Almost everything is connected to the internet, including vehicles, home appliances, and even the wristwatch conceptualized only to show time back in the day. 

Unfortunately, as dependency on the internet increases, so do threats by hackers and cybercriminals using sophisticated tools and malware to compromise devices and gain access to confidential information and even funds.

The past decade has seen a serious uptick in cybercrimes, which has, in turn, created a huge demand for cybersecurity solutions: the result is strong growth and a highly optimistic outlook for the cybersecurity market. 

According to reports, the cybersecurity market in 2021 was valued at USD 217.87 billion, estimated to surpass USD 240.27 billion by the end of 2022, and reach USD 345.38 billion by 2026 with a CAGR of 9.5%.

While cyberattacks may go unnoticed at times, the growth potential of the cybersecurity industry hasn’t. As a result, many investors worldwide have started to bet big on the cybersecurity domain, hoping to earn attractive returns. The rising interest in cybersecurity ETFs (Exchange Traded Funds) corroborates the hypothesis.

What is a Cybersecurity ETF?

Exchange-Traded Funds (ETFs) are pooled investment securities that track a collection of instruments in a particular category. These securities can be bought and sold on stock exchange platforms where they are listed. 

The performance of these ETFs is directly proportional to that of the collection of assets they track. For example, cybersecurity ETFs, as the name suggests, are ETFs that track a curated basket of stocks belonging to cybersecurity firms.

Why Consider Including Cybersecurity ETFs in the Investment Portfolio

The nature of businesses included in the Cybersecurity ETFs includes but is not limited to those involved in building and managing security systems for public and private networks. 

The demand for solutions offered by these businesses is only going to increase due to various factors, including the increasing reliance on IT infrastructure by enterprises and governments and the rising need for individuals to secure their personal information amid rising cybersecurity threats. 

As a result, these cybersecurity firms will enjoy higher revenues, translating to an increase in the value of their securities. Automatically, the value of Cybersecurity ETFs buying into these securities also goes upwards.

Prominent Cybersecurity ETFs

As a relatively new vehicle, there aren’t many well-known cybersecurity ETFs in the market. Few popular ones that have made a name for themselves across leading stock markets include:

Most of these Cybersecurity ETFs maintain a diversified securities portfolio, including some of the industry’s big names based in the United States, Israel, Britain, Japan, South Korea, Canada, Taiwan, and other countries. 

Meanwhile, most of the investor interest in cybersecurity ETFs seems to be concentrated in Germany, followed by the United States, Canada, Netherlands, and Australia.

The leading stock exchange platforms support a select collection of cybersecurity ETFs in these countries. For example, in Germany, investors can invest in almost all the above-listed ETFs and more through the Undertakings for Collective Investment in Transferable Securities Directive (UCITS). 

This EU legislation allows the operation of investment schemes throughout the EU region based on a single authorization. The list of Cybersecurity ETFs offered in Frankfurt. 

XETRA stock exchanges include First Trust Nasdaq UCITS ETF (CBRS), Rize Cyber Security and Data Privacy UCITS ETF-USD Accumulating (RCRS), L&G Cyber Security UCITS ETF (USPY), iShares Digital Security UCITS ETF (LOCK), iShares Digital Security UCITS ETF USD(Dist) (IS4S) and WisdomTree Cybersecurity UCITS ETF – USD Acc (W1TB). Almost all the ETFs listed under UCITS are also supported in the Netherlands, an EU nation.

Meanwhile, in Australia, BetaShares Global Cybersecurity ETF (HACK) on Australia Stock Exchange (ASX) leads the way. In Canada, the prominent cybersecurity ETF listed on Toronto Stock Exchange (TSX) is Evolve Cyber Security Index Fund (CYBR), which attempts to replicate the performance of another USD/CAD denominated Solactive Global Cyber Security Index fund.

Picking the Right Cybersecurity ETF

One needs to keep in mind a few things before selecting the ETF. The first one is the reputation of the fund manager, including the performance of any other funds they might be handling. 

Another factor one needs to consider is the expense ratio. An ETF with a low expense ratio is better, especially when the competing funds are invested in the same or similar securities.

At the same time, the size of assets under management also plays an important role as it indicates the availability of liquidity. So, given a choice between funds with differing AUM values, it is good to consider the one at the higher end.

Cybersecurity ETF makes it easier for investors to maintain a diverse portfolio by including one of the fast-growing industry segments. In this segment, we have explained cybersecurity ETFs and their benefits and a few options so that our readers can keep themselves updated about various available investment options. 

It is not meant to be considered investment advice. If you wish to invest in Cybersecurity ETFs, please conduct your research carefully and only then decide on putting your money into these assets.

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