Best Cybersecurity ETFs

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Contributor, Benzinga
August 14, 2023

As cyberattacks become more frequent and sophisticated, the demand for cybersecurity solutions and services has increased. As a result, cybersecurity is one of the technology industry’s fastest-growing sectors. Investing in cybersecurity exchange-traded funds (ETFs) can provide exposure to a diversified portfolio of companies that protect data, networks and systems from cyber threats. This article reviews six of the best cybersecurity ETFs to consider for 2023 and beyond. 

6 Best Cybersecurity ETFs

Here are six of the best cybersecurity ETFs based on their performance, market value, expense ratio and holdings.

1. First Trust NASDAQ Cybersecurity ETF (NASDAQ: CIBR)

Nasdaq’s cybersecurity ETF is the largest and most popular cybersecurity ETF, with a market value of $4.97 trillion as of Aug. 8, 2023. It tracks the Nasdaq CTA Cybersecurity Index, which consists of 37 companies classified as cybersecurity providers by the Consumer Technology Association. The ETF includes software, hardware, services and consulting segments of the cybersecurity industry. Some of its top holdings include Cisco Systems, Palo Alto Networks, Accenture, CrowdStrike and Zscaler. The ETF has a low expense ratio of 0.6% and a yield of 0.33%. CIBR reflects the industry's growth and stability and can provide a buffer against market downturns and crises.

2. ETFMG Prime Cyber Security ETF (NYSEARCA: HACK)

This ETF is a well-established player in the cybersecurity market, with a market value of $1.415 trillion as of Aug. 8, 2023. It follows the Prime Cyber Defense Index, which comprises 59 companies offering cybersecurity hardware, software and services. Unlike CIBR, this ETF has a more global presence, including businesses from Japan, Israel and South Korea. Its top holdings include Fortinet, Okta, Cloudflare, Check Point Software and McAfee. The ETF has provided investors with a yield of 0.18% at an expense ratio of 0.6%. HACK can benefit from the rising demand for cybersecurity solutions and services and offer protection against market downturns or crises.

3. Global X Cybersecurity UCITS ETF (NASDAQGM: BUG)

This newer and smaller cybersecurity ETF tracks the Indxx Cybersecurity Index, comprising 25 companies that focus on developing or managing security protocols to prevent cyberattacks. BUG specifically targets pure-play cybersecurity companies that earn at least 50% of their revenue from cybersecurity-related activities. Some of the top holdings include Crowdstrike, Zscaler, Okta, Cloudflare and Qualys. It has a 0.5% expense ratio and a market cap of $657.57 million as of Aug. 8, 2023. Consider BUG for access to innovative and disruptive companies with high growth potential and competitive advantages. 

4. iShares Cybersecurity and Tech ETF (NYSEARCA: IHAK)

IHAK is a relatively new and small cybersecurity ETF with a market value of $581 million as of Aug. 8, 2023. It tracks the NYSE FactSet Global Cyber Security Index, which consists of 40 companies that provide cybersecurity hardware, software or services to protect against cyberattacks. The ETF has a more balanced exposure to different market capitalizations and regions than BUG, as it includes large-cap, mid-cap and small-cap companies from developed and emerging markets. These companies include Palo Alto Networks, Cisco Systems, Fortinet, Okta and CrowdStrike. The ETF has an expense ratio of 0.47% and a dividend yield of 0.78%. IHAK is a great option for investors seeking a cybersecurity ETF with global exposure. It offers protection during market downturns and benefits from the growing demand for cybersecurity solutions and services.

5. WisdomTree Cybersecurity Fund (NASDAQ: WCBR)

WCBR is the newest and smallest ETF on this list, boasting a market value of $31.3 million as of Aug. 8, 2023. WCBR tracks the WisdomTree Team8 Cybersecurity Index, which comprises 26 firms and is monitored by a team of cybersecurity specialists from Team8, a venture capital company that specializes in cybersecurity. WCBR aims to identify the most cutting-edge and disruptive companies in the cybersecurity sector, with a focus on those that have strong growth potential and a competitive edge. Top holdings of WCBR include Zscaler, CrowdStrike, Okta, Cloudflare and Rapid7.  With a low expense ratio of 0.45%, WCBR could be a great pick if you're interested in cybersecurity. With the help of Team8, it can identify the most promising companies in the sector.

6. Vanguard Information Technology Index Fund ETF (NYSEARCA: VGT)

Investors looking for a diversified and low-cost tech ETF can consider VGT with its expense ratio of just 0.1% and yield of 0.72%. While it's not a pure-play cybersecurity ETF, it includes exposure to cybersecurity companies among its 369 holdings in the technology sector, including software, hardware, internet, semiconductors and IT services. Top holdings include Apple, Microsoft, Visa, NVIDIA and Adobe, while about 5% of its holdings are classified as cybersecurity companies, such as Cisco Systems, Palo Alto Networks, Fortinet, Check Point Software and FireEye. VGT has a market cap of $51.2 billion as of Aug. 8, 2023 Investing in VGT can offer growth potential and exposure to innovative and leading technology companies and markets. 

What are Cybersecurity ETFs?

Cybersecurity is the practice of protecting data, networks and systems from unauthorized access, theft or damage by cybercriminals or hackers. Cybersecurity ETFs invest in a basket of stocks of companies involved in the cybersecurity industry. These companies provide products and services to help individuals, businesses and governments prevent, detect and respond to cyberattacks. Cybersecurity ETFs allow investors to gain exposure to the cybersecurity sector without picking individual stocks or analyzing each company's financials and prospects.

Benefits of Investing in Cybersecurity ETFs

Investing in cybersecurity ETFs can offer several benefits, such as:

  • Diversification: They can help investors diversify their portfolio by adding exposure to a high-growth and resilient sector that is not highly correlated with the broader market. Cybersecurity ETFs can also reduce the risk of investing in individual cybersecurity stocks that may be volatile or subject to company-specific issues.
  • Growth potential: Cybersecurity ETFs can capture the growth potential of the cybersecurity industry, which is driven by the increasing digitization of the economy, rising adoption of cloud computing and mobile devices, growing sophistication and frequency of cyberattacks and the evolving regulatory and compliance requirements for data protection.
  • Cost-efficiency: Cybersecurity ETFs can offer a cost-efficient way to invest in the cybersecurity sector, as they typically have lower fees and expenses than actively managed funds or individual stocks. They can also provide tax efficiency by minimizing capital gains distributions and turnover.

Factors to Consider When Choosing a Cybersecurity ETF

When choosing a cybersecurity ETF to invest in, investors should consider factors, such as:

Investment objectives

Cybersecurity ETFs may have different investment objectives, such as focusing on specific segments or regions of the cybersecurity industry or targeting certain market capitalizations or growth rates. Investors should choose a cybersecurity ETF that aligns with their desired level of exposure and return potential.

Index tracked

Investors should also examine the cybersecurity ETF's index, as it determines the selection and weighting of the underlying holdings. Indexes may have different criteria and methodologies for defining and measuring the cybersecurity industry, such as using classifications, thresholds and rebalancing frequencies. Investors should choose a cybersecurity ETF that tracks an index that reflects their preferred definition and scope of the cybersecurity industry.

Expense ratio

The expense ratio is the annual fee that an ETF charges its investors for managing and operating the fund. It is expressed as a percentage of the fund's assets. A lower expense ratio means lower costs for investors and higher returns over time. Investors should compare the expense ratios of cybersecurity ETFs and choose one that offers a reasonable fee for its performance and features.

Past performance

While past performance does not guarantee future results, it can indicate how well a cybersecurity ETF has performed relative to its peers and benchmarks over time. Investors should look at the historical returns, volatility and risk-adjusted measures of cybersecurity ETFs and choose one that has demonstrated consistent and superior performance over time.

Where to Invest in Cybersecurity ETFs

Investing in cybersecurity ETFs is easy and convenient, as they are traded on major stock exchanges like any other stock. Investors can buy and sell cybersecurity ETFs through platforms such as online brokers, robo-advisers or financial advisers. 

Here is a comparison table of some popular platforms that offer access to cybersecurity ETFs.

Choosing the Best Cybersecurity ETF

Cybersecurity ETFs can be a great way to invest in the cybersecurity industry, which is expected to grow rapidly in the coming years as cyberattacks become more prevalent and complex. Cybersecurity ETFs can offer diversification, growth potential and cost-efficiency to investors who want to gain exposure to this sector. However, not all cybersecurity ETFs are created equal and investors should consider their investment objectives, the index tracked, the expense ratio and the past performance of cybersecurity ETFs before making a decision. 

Frequently Asked Questions

Q

Are cybersecurity ETFs a good investment?

A

Cybersecurity ETFs can be a good investment for investors who want to capitalize on the growth and resilience of the cybersecurity industry, which is driven by the increasing demand for cybersecurity solutions and services in the digital economy.

Q

What is the most profitable cybersecurity company?

A

Cybersecurity companies use profitability metrics such as revenue, earnings, margin or return on equity. The most profitable cyber security company based on net income for 2022 is Cisco Systems ($11.9 billion).

Q

What is the top cybersecurity ETF?

A

The top cybersecurity ETF is First Trust Nasdaq Cybersecurity ETF.

About Anna Yen

Anna Yen, CFA is an investment writer with over two decades of professional finance and writing experience in roles within JPMorgan and UBS derivatives, asset management, crypto, and Family Money Map. She specializes in writing about investment topics ranging from traditional asset classes and derivatives to alternatives like cryptocurrency and real estate. Her work has been published on sites like Quicken and the crypto exchange Bybit.