In an era of rapid digital expansion and transformation, the significance of cybersecurity has become more evident than ever. As the digital economy continues to thrive and evolve, safeguarding sensitive information, protecting digital assets, and mitigating cyber threats has emerged as a critical priority for individuals and organizations alike. The growing realization of the potential risks and consequences associated with cyberattacks has underscored the indispensable role of cybersecurity in ensuring the integrity, privacy, and resilience of our digital landscape.
This has led to a significant rise in investments in companies specializing in cybersecurity. The ETFMG Prime Cyber Security ETF (NYSEARCA:HACK) is a good fund particularly for those interested in gaining exposure to the cybersecurity sector. It tracks a portfolio of companies actively involved in providing cybersecurity solutions, including hardware, software, and services. Amid the exponential rise of cyber threats, companies are elevating their cybersecurity spending, creating a robust growth opportunity for the industry.
Launched in November 2014, HACK was the first ETF that specifically targeted the cybersecurity industry. HACK provides investors with a cost-effective solution to gain exposure to a diversified portfolio of companies in the cybersecurity sector. As an exchange-traded fund, HACK offers the benefits of intraday liquidity and portfolio transparency. With assets under management of $1.6 billion, HACK has established itself as a popular choice for investors looking to capitalize on the growing importance of cybersecurity in today's digital landscape.
A Closer Look at HACK's Holdings
HACK's portfolio comprises 48 companies actively engaged in providing cybersecurity solutions. The top five holdings include:
-
Okta, Inc. (OKTA): Comprising 4.74% of the total assets. It is a leading identity and access management company that offers cloud software solutions. Their software aids companies in effectively managing and securing user authentication for applications. Additionally, OKTA provides developers with tools to incorporate identity controls into applications, websites, web services, and devices.
-
Zscaler, Inc. (ZS): Accounting for 4.70% of the total assets. This global company specializes in cloud-based information security. Zscaler offers a range of services including internet security, web security, firewall, sandboxing, SSL inspection, antivirus, vulnerability management, and precise control of user activity in cloud computing, mobile, and Internet of Things (IOT) environments.
-
Fortinet, Inc. (FTNT): Making up 4.67% of the total assets, Fortinet Inc. specializes in high performance cybersecurity solutions, such as firewalls, anti-virus, intrusion prevention, VPN, endpoint security, and others, to protect networks, users, and data from continually evolving threats.
-
Cloudflare, Inc. (NET): With a 4.52% share of the total assets, Cloudflare Inc. offers cloud-based services to secure websites. It provides various security services, including distributed denial-of-service (DDoS) attack mitigation, bot management, and secure remote access.
-
CrowdStrike Holdings, Inc. (CRWD): Representing 4.52% of the total assets, CrowdStrike Holdings Inc. offers cloud-delivered solutions for endpoint protection, threat intelligence, and cyberattack response.
HACK's sector composition is quite diverse, with significant weightings towards the Information Technology sector. It also has exposure to the Industrials and Financials sectors. This diversified approach allows the fund to benefit from growth opportunities across multiple sectors.
Peer Comparison – HACK vs. BUG
Comparing HACK with the Global X Cybersecurity ETF (BUG), another prominent cybersecurity ETF, we find some notable differences. In terms of holdings, HACK's portfolio comprises 48 stocks, while BUG's includes 24. This makes BUG a more concentrated portfolio. BUG's volatility is higher than HACK's, which could be attributed to BUG's relatively narrower pool of securities. HACK has notably outperformed.
stockcharts.com
Pros and Cons of Investing in HACK
Investing in HACK offers several advantages. It provides exposure to a high-growth sector, with many of its holdings expected to witness robust revenue growth. It also offers diversification benefits, with exposure to various sectors and companies of different sizes.
However, there are also some drawbacks. The fund's expense ratio of 0.6% is higher than many other tech-focused ETFs. Moreover, HACK's high P/E ratio (25.22x) suggests that it is not a cheap ETF to own.
To Invest or Not to Invest
The ETFMG Prime Cyber Security ETF presents a unique investment opportunity for those looking to gain exposure to the booming cybersecurity sector. Despite some drawbacks, including a higher expense ratio and P/E, the potential for robust growth, coupled with diversification benefits, makes it a good option for investors. Investing in HACK could prove to be a smart move, especially considering the increasing importance of cybersecurity and the expected growth in the sector.