7 Cybersecurity Funds for Growth Investors

cybersecurity funds - 7 Cybersecurity Funds for Growth Investors

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Over the past several years, cybersecurity has emerged as one of the hottest themes in the broader technology sector. Data suggest it could also be one of the most durable technology investment themes over the long-term.

According to Markets and Markets research:

“The cybersecurity market is expected to grow from USD 137.85 Billion in 2017 to USD 231.94 Billion by 2022, at a Compound Annual Growth Rate (CAGR) of 11.0%. The major forces driving the cybersecurity market are strict data protection directives and cyber terrorism. The cybersecurity market is growing rapidly because of the growing security needs of Internet of Things (IoT) and Bring Your Own Device (BYOD) trends, and increased deployment of web and cloud-based business applications.”

Importantly, the appetite for cybersecurity products and services is broad-based, spanning multiple sectors and industries ranging from automotive to financial services to healthcare and beyond.

Cybersecurity funds are effective ways for investors to gain exposure to this industry’s exciting growth prospects. Additionally, cybersecurity funds ease the stock picking burden and help investors zero in on cybersecurity investments while many diversified technology funds offer only small cybersecurity exposure.

Growth investors may want to consider these 7 cybersecurity funds.

Cybersecurity Funds for Growth Investors: 

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ETFMG Prime Cyber Security ETF (HACK)

Expense ratio: 0.60% per year, or $60 on a $10,000 investment.

In the world of cybersecurity funds, exchange-traded funds (ETFs) are often tapped by investors looking for exposure to this theme. That trend was kicked off by the ETFMG Prime Cyber Security ETF (NYSEARCA:HACK), the first dedicated cybersecurity ETF. HACK celebrates its fourth birthday in November.

HACK tracks the Prime Cyber Defense Index, which is “comprised of companies that offer hardware, software, consulting and services to defend against cybercrime,” according to the issuer.

This cybersecurity fund holds 50 stocks, none of which exceed weights of 4.48% in the portfolio. While HACK is home to some old guard technology stocks, such as Cisco Systems Inc. (NASDAQ:CSCO), the bulk of the fund’s holdings are either heavily focused on or are dedicated cybersecurity companies.

HACK is up 27% over the past year.

Cybersecurity Funds for Growth Investors: 

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First Trust NASDAQ Cybersecurity ETF (CIBR)

Expense ratio: 0.60% per year, or $60 on a $10,000 investment.

The First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR) was the second cybersecurity ETF to have come to market. This cybersecurity fund turned three years old earlier this month. This cybersecurity fund tracks the Nasdaq CTA Cybersecurity Index.

While it may appear that CIBR and HACK are similar funds, they actually approach the same investment theme in differing fashions. For example, CIBR holds just 32 stocks and its holdings must be deemed cybsecurity companies by the Consumer Technology Association (CTA).

CIBR holdings have a median market value of $4.06 billion, so this cybersecurity fund also tilts away from large-cap, diversified technology companies.

Cybersecurity Funds for Growth Investors: 

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ALPS Disruptive Technologies ETF

Expense ratio: 0.50%, or $50 on a $10,000 stake.

For investors that want some cybersecurity exposure without committing to a dedicated cybersecurity fund, the ALPS Disruptive Technologies ETF (NYSEARCA:DTEC) makes a lot of sense. DTEC is not your run-of-the-mill technology ETF. Rather, this fund offers exposure to 10 fast-growing technology themes, many of which are under-represented or ignored in traditional technology funds.

Cybersecurity is one of the 10 themes represented in DTEC and since this fund equally weights those themes, it has some credentials as a cybersecurity fund.

While DTEC’s track record is not lengthy (the fund debuted in December), it has returned more than 15% since coming to market while amassing $30.24 million in assets under management.

Cybersecurity Funds for Growth Investors: 

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SPDR Kensho Future Security ETF (XKFS)

Expense Ratio: 0.45% per year, or $45 on a $10,000 position.

The SPDR Kensho Future Security ETF (NYSEARCA:XKFS) does not come right and say it is a cybersecurity fund, but it very much is.

This ETF’s underlying index provides exposure to “cyber security, advanced border security, and the following areas for military application: robotics, drones and drone technologies, space technology, wearable technologies and virtual or augmented reality activities,” according to State Street.

Compared to some of the legacy cybersecurity funds, XKFS has a large lineup with 67 holdings spread across over a dozen industries, including aerospace and defense, software, telecommunications, semiconductors, life sciences and construction.

This cybersecurity fund could prove to be a solid play on government cybersecurity spending, which is a rising theme. For fiscal 2019, the Departments of Defense and Homeland Security will spend over $10 billion combined on cybersecurity. Like DTEC, XKFS is a new fund, also having debuted in December. The SPDR fund is also up more than 15% since inception.

Cybersecurity Funds for Growth Investors: 

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BlueStar Israel Technology ETF (ITEQ)

Expense Ratio: 0.75% per year, or $75 on a $10,000 investment.

Ex-U.S. developed markets stocks are struggling this year, but the BlueStar Israel Technology ETF (NYSEARCA:ITEQ) did not get that memo. Up 13.54% year-to-date, ITEQ resides near record highs. This year, ITEQ is topping the MSCI Israel Capped Investable Market Index by a margin of approximately 4-to-1.

Although it is not a dedicated cybersecurity fund, ITEQ is close thanks to Israel’s prominence on the global cybersecurity stage. In addition to the mid- and large-cap names found in ITEQ, Israel is home to nearly 170 cybersecurity startups.

ITEQ holds 72 stocks, including some from the clean energy, healthcare and more traditional technology sectors.

Cybersecurity Funds for Growth Investors: 

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Global X Future Analytics Tech ETF (AIQ)

Expense ratio: 0.68% per year, or $68 on a $10,000 stake.

The Global X Future Analytics Tech ETF (NASDAQ:AIQ) is another new entrant to the world of new generation technology funds. AIQ, which debuted in May, follows the Indxx Artificial Intelligence & Big Data Index.

The new Global X offering “seeks to invest in companies that potentially stand to benefit from the further development and utilization of artificial intelligence (AI) technology in their products and services, as well as in companies that provide hardware facilitating the use of AI for the analysis of big data,” according to the issuer.

AIQ is not a dedicated cybersecurity fund, but it does hold some cybersecurity stocks. Additionally, some of AIQ’s other components are indirect cybersecurity players.

Cybersecurity Funds for Growth Investors: 

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Invesco Dynamic Networking ETF (PXQ)

Expense ratio: 0.63% per year, or $63 on a $10,000 investment.

The Invesco Dynamic Networking ETF (NYSEARCA:PXQ) is not a dedicated cybersecurity fund, either, but this overlooked technology fund does offer decent cybersecurity exposure.

PXQ also gives investors an option for tapping technology in non-cap-weighted fashion. This ETF’s underlying index selects stocks based on factors such as price momentum, earnings momentum, quality, management action, and value.

While PXQ is a focused fund with just 30 holdings, this quasi-cybersecurity fund spans multiple market cap spectrums as it includes large-, mid- and small-cap stocks. PXQ devotes over 24% of its weight to small-cap growth stocks, which is one of this year’s best-performing asset classes.

Todd Shriber does not own any of the aforementioned securities.

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