Best Cybersecurity ETFs
Best Cybersecurity ETFs
Cybersecurity stocks have been correcting along with others, and earnings estimates are dropping for big sector names such as CrowdStrike Holdings Inc. (ticker: CRWD) and Palo Alto Networks Inc. (PANW). However, Wall Street continues to expect double-digit profit growth as demand for their services remains high.
Other companies in the industry, such as Cloudflare Inc. (NET) and Zscaler Inc. (ZS), have seen earnings growth estimates revised higher.
Cyber threats and data breaches aren't going away anytime soon, so corporations and governments will continue to spend in the category.
In a March 22 research report covering Palo Alto Networks, Argus analyst Joseph Bonner issued a "buy" recommendation, adding, "The cybersecurity environment is, if anything, getting more toxic as generative AI may fuel even more sophisticated cyberattacks as well as some defensive tools. Gen AI and cloud expansion have made cybersecurity even more critical to enterprises."
For investors who want exposure to this industry but don't want to pick individual stocks, cybersecurity exchange-traded funds, or ETFs, may be a sound choice.
Here's a look at five cybersecurity ETFs to give investors access to this growing area of the market:
Cybersecurity ETF
Amplify Cybersecurity ETF (HACK)
WisdomTree Cybersecurity Fund (WCBR)
iShares Cybersecurity and Tech ETF (IHAK)
Xtrackers Cybersecurity Select Equity ETF (PSWD)
Global X Cybersecurity ETF (BUG)
Other companies in the industry, such as Cloudflare Inc. (NET) and Zscaler Inc. (ZS), have seen earnings growth estimates revised higher.
Cyber threats and data breaches aren't going away anytime soon, so corporations and governments will continue to spend in the category.
In a March 22 research report covering Palo Alto Networks, Argus analyst Joseph Bonner issued a "buy" recommendation, adding, "The cybersecurity environment is, if anything, getting more toxic as generative AI may fuel even more sophisticated cyberattacks as well as some defensive tools. Gen AI and cloud expansion have made cybersecurity even more critical to enterprises."
For investors who want exposure to this industry but don't want to pick individual stocks, cybersecurity exchange-traded funds, or ETFs, may be a sound choice.
Here's a look at five cybersecurity ETFs to give investors access to this growing area of the market:
Cybersecurity ETF
Amplify Cybersecurity ETF (HACK)
WisdomTree Cybersecurity Fund (WCBR)
iShares Cybersecurity and Tech ETF (IHAK)
Xtrackers Cybersecurity Select Equity ETF (PSWD)
Global X Cybersecurity ETF (BUG)
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Re: Best Cybersecurity ETFs
Amplify Cybersecurity ETF (HACK)
HACK was launched in 2014, making it the first cybersecurity-themed ETF. It has $2 billion in assets under management, or AUM. Top holdings include Broadcom Inc. (AVGO), Cisco Systems Inc. (CSCO), Palo Alto Networks, Northrop Grumman Corp. (NOC) and General Dynamics Corp. (GD). Its 25 equity holdings also include smaller, more specialized firms such as A10 Networks Inc. (ATEN).
"It has an expense ratio of 0.6%, which is good but not great," Latham says. However, it is considered relatively stable and growth-oriented, and the fund has earned low-carbon accolades from Morningstar for its low fossil fuel exposure over the past 12 months.
HACK was launched in 2014, making it the first cybersecurity-themed ETF. It has $2 billion in assets under management, or AUM. Top holdings include Broadcom Inc. (AVGO), Cisco Systems Inc. (CSCO), Palo Alto Networks, Northrop Grumman Corp. (NOC) and General Dynamics Corp. (GD). Its 25 equity holdings also include smaller, more specialized firms such as A10 Networks Inc. (ATEN).
"It has an expense ratio of 0.6%, which is good but not great," Latham says. However, it is considered relatively stable and growth-oriented, and the fund has earned low-carbon accolades from Morningstar for its low fossil fuel exposure over the past 12 months.
Re: Best Cybersecurity ETFs
WisdomTree Cybersecurity Fund (WCBR)
This ETF tracks the WisdomTree Team8 Cybersecurity Index, which was established in October 2020. The ETF was launched soon after that, in January 2021. It currently has $131.8 million in assets under management, putting it in the ranks of smaller ETFs.
The vast majority of holdings are U.S.-based companies, with smaller weightings from Israel and Japan. It's a fairly concentrated fund, with 24 holdings, and it has an expense ratio of 0.45%.
Volatility could be a risk; its short track record and concentration in a single industry may result in significant price fluctuations. Its beta is 1.23, indicating that it's 23% more volatile than the broader market. However, the tech sector is more volatile than the broader S&P 500, and its tilt toward mid-cap and small-cap stocks is a contributing factor.
This ETF tracks the WisdomTree Team8 Cybersecurity Index, which was established in October 2020. The ETF was launched soon after that, in January 2021. It currently has $131.8 million in assets under management, putting it in the ranks of smaller ETFs.
The vast majority of holdings are U.S.-based companies, with smaller weightings from Israel and Japan. It's a fairly concentrated fund, with 24 holdings, and it has an expense ratio of 0.45%.
Volatility could be a risk; its short track record and concentration in a single industry may result in significant price fluctuations. Its beta is 1.23, indicating that it's 23% more volatile than the broader market. However, the tech sector is more volatile than the broader S&P 500, and its tilt toward mid-cap and small-cap stocks is a contributing factor.
Re: Best Cybersecurity ETFs
iShares Cybersecurity and Tech ETF (IHAK)
Latham cites this ETF's low expense ratio of 0.47% and its global exposure as key advantages. In addition to the U.S., holdings represent companies domiciled in Israel, Japan, Taiwan, Canada, Denmark, Germany and Malaysia.
Its turnover is relatively low, making it a set-it-and-forget-it type of ETF, Latham says. Plus, this ETF has $939.4 million in assets; as it is part of the vast BlackRock ETF family, liquidity is unlikely to be an issue, Latham adds.
"If you want cybersecurity exposure without overpaying on fees, IHAK is a solid contender," he says.
Latham cites this ETF's low expense ratio of 0.47% and its global exposure as key advantages. In addition to the U.S., holdings represent companies domiciled in Israel, Japan, Taiwan, Canada, Denmark, Germany and Malaysia.
Its turnover is relatively low, making it a set-it-and-forget-it type of ETF, Latham says. Plus, this ETF has $939.4 million in assets; as it is part of the vast BlackRock ETF family, liquidity is unlikely to be an issue, Latham adds.
"If you want cybersecurity exposure without overpaying on fees, IHAK is a solid contender," he says.
Re: Best Cybersecurity ETFs
Xtrackers Cybersecurity Select Equity ETF (PSWD)
This is a relatively new ETF, having made its debut in July 2023. As you might expect from a young fund, it's still on the small side, with just $6.9 million in assets under management.
Its expense ratio is 0.2%, making it a cost-efficient option among U.S.-listed cybersecurity ETFs. Fund manager XTrackers can keep costs low by simply tracking the Solactive Cyber Security ESG Index.
"This index is a representation of securities that have business operations in the field of cybersecurity and that fulfill certain sustainability criteria," says Noack, whose firm manages the fund.
Largest holdings are Okta Inc. (OKTA), the Tokyo Stock Exchange-listed shares of Trend Micro Inc. (4704.T) and Check Point Software Technologies Ltd. (CHKP).
"Investors' interest in cybersecurity companies remains strong, even in the recent market downturn," Noack adds.
Year to date, PSWD has returned 3.33% versus the S&P 500's performance of -1.94% as of the March 24 close.
This is a relatively new ETF, having made its debut in July 2023. As you might expect from a young fund, it's still on the small side, with just $6.9 million in assets under management.
Its expense ratio is 0.2%, making it a cost-efficient option among U.S.-listed cybersecurity ETFs. Fund manager XTrackers can keep costs low by simply tracking the Solactive Cyber Security ESG Index.
"This index is a representation of securities that have business operations in the field of cybersecurity and that fulfill certain sustainability criteria," says Noack, whose firm manages the fund.
Largest holdings are Okta Inc. (OKTA), the Tokyo Stock Exchange-listed shares of Trend Micro Inc. (4704.T) and Check Point Software Technologies Ltd. (CHKP).
"Investors' interest in cybersecurity companies remains strong, even in the recent market downturn," Noack adds.
Year to date, PSWD has returned 3.33% versus the S&P 500's performance of -1.94% as of the March 24 close.
Re: Best Cybersecurity ETFs
Global X Cybersecurity ETF (BUG)
Latham calls this ETF the "high-risk, high-reward play." It tracks the Indxx Cybersecurity Index, consisting of companies that generate at least 50% of their revenue from cybersecurity activities. "This means it's concentrated in fast-growing, mid-cap firms rather than tech behemoths," Latham says.
Top country representation includes the U.S., Israel, Japan and South Korea. This ETF's fast growth and tilt toward mid-caps means it's more volatile than the S&P 500. Year to date, it's returned 6%, however.
"If you're looking for an ETF with more upside potential and are cool with some turbulence, BUG could be your best bet," Latham says.
Latham calls this ETF the "high-risk, high-reward play." It tracks the Indxx Cybersecurity Index, consisting of companies that generate at least 50% of their revenue from cybersecurity activities. "This means it's concentrated in fast-growing, mid-cap firms rather than tech behemoths," Latham says.
Top country representation includes the U.S., Israel, Japan and South Korea. This ETF's fast growth and tilt toward mid-caps means it's more volatile than the S&P 500. Year to date, it's returned 6%, however.
"If you're looking for an ETF with more upside potential and are cool with some turbulence, BUG could be your best bet," Latham says.