In an era of digitization, individuals, businesses and governments have become more vulnerable to cybercrime, which has been growing exponentially year after year. With the spread of smart working, companies have faced new challenges to strengthen their ability to withstand attacks and this has led to increased investment in cybersecurity, better known as cyber security. It is therefore not surprising that more and more investors are looking at the sector with interest and are starting to seriously consider the idea of investing in Cyber Security ETFs: let’s see what it is all about and what are the best solutions available today.
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Cyber Security ETFs: What they are
Cyber security ETFs are exchange-traded funds that invest in companies operating in the cyber security industry. Investing in this type of fund could be an interesting choice for those who want to bet on the long-term growth prospects of the cyber security industry.
If we analyze the last 20 years, we see that the ETF market has been able to intercept all major growth trends; therefore, it is not surprising that products have emerged that allow anyone to invest in the cyber security sector, which has seen explosive growth in 2020-2021.
For those who are not used to dealing with this particular type of instrument, we would like to remind you that ETFs (Exchange Traded Funds) are funds characterized by a passive management that entails a greater containment of costs and by the fact that their shares are traded on the stock exchange exactly like shares. Their objective is to faithfully replicate the performance of the reference asset, which can be a stock index, a bond index, commodities and so on.
In addition, it is worth pointing out that buying a fund traded on the stock exchange allows you to diversify your portfolio and thus dilute the risk by accessing markets that were previously absolutely inaccessible.
How to Invest in ETFs
The best way to invest in ETFs independently is to rely on an online trading platform, provided you choose one that is certified and internationally recognized.
Investors can approach this new reality using a platform such as eToro, an intermediary of excellent quality, with a license issued by CySEC and authorized by Consob to operate in Italy. At the time of registration, the platform will probe your level of experience with a short quiz whose outcome will decide what tools will be available in your eToro account. The minimum deposit amount is 50 €.
The Best ETFs on Cyber Security
Below we evaluate the best Cyber Security ETFs capable of offering exposure to companies operating in the cyber security industry.
Among the ETFs to watch out for is definitely L&G Cyber Security UCITS ETF, made particularly interesting by its exposure to a basket consisting of about 30 stocks of companies that offer technologies and services aimed at containing cyber attacks. The fund’s underlying asset is the ISE Cyber Security UCITS Index, an index poised to capture the growth trends of both established and emerging companies. Its performance in 2021 was 16.20%. The only drawback is the management cost, which, hovering around 0.75% per year, is certainly not among the cheapest.
Another name to remember is iShares Digital Security UCITS ETF, which closed 2021 with +26.13%. The ETF from BlackRock (the world’s first ETF issuer) has the STOXX® Global Digital Security index as its underlying, replicating companies from specific industries associated with digital security. One feature that makes it particularly attractive is its management cost, which stops at 0.40%.
Among the best cyber security ETFs to invest in is also First Trust Nasdaq Cybersecurity UCITS ETF Acc, a product launched in 2020 that in one year has posted a performance of +40%, while in 2021 it had a return of 29.38%. This fund replicates the Nasdaq CTA Cybersecurity Index, an index composed of a number of companies that are currently active in cybersecurity. Its management cost is 0.60% per year.
Benefits and Risks of Investment: Is it worth it?
Cybersecurity ETFs are having a lot of success in the last period thanks to an increasing interest in this market. The outbreak of the pandemic and the various lockdowns that have greatly accelerated the process of digitization of companies. This evolution, however, in addition to bringing unquestionable benefits, has opened the door to cyber crimes in a way never seen before.
In response to these threats, companies have been taking action by adding more or less sophisticated defense systems, increasing the profits of companies specializing in cyber security. Given this scenario, it is evident that the cyber security sector will receive a significant increase in interest from investors in the coming years.
Cyber Security ETFs therefore represent an excellent opportunity for investors especially because they allow to invest on a basket of stocks, bonds, commodities and stock indices, diversifying the portfolio without using a large capital. Furthermore, they offer considerable savings in fees considering that behind an ETF there is an algorithm and not a management team. The main reason for apprehension concerns the risk of illiquidity, but this obviously does not diminish its value.