The evolution of the work from home economy, the boom on online commerce, the focus on election security and the looming threat of continued data integrity hacks have made the cybersecurity sector a top focus for several years among individuals, companies and investors.
Global cybersecurity stocks went through an initial boom/bust cycle about 6 years ago, but since then, save for pullbacks in late 2018 and early 2020, it's been almost a straight line up. Cybersecurity has become a priority for both businesses and consumers. Millions of dollars is being invested into developing infrastructure and the demand for cybersecurity protections has never been higher.
The cybersecurity sector was up over 40% in 2020 and I believe there's still further upside to be had in 2021. The sector is certainly expensive at current levels, but a recovering global economy, extremely loose monetary conditions and strong services demand should bode well.
If you're looking to add cybersecurity exposure to your portfolio, here are the top 5 cybersecurity ETFs to consider buying.
First Trust Nasdaq Cybersecurity ETF (CIBR)
CIBR is currently the largest cybersecurity fund despite being the second to market. It tracks companies primarily involved in the building, implementation, and management of security protocols. The fund considers both market capitalization and liquidity in order to determine allocations.
CIBR contains about 40 names with CrowdStrike, Okta and Zscaler among the largest holdings.
ETFMG Prime Cyber Security ETF (HACK)
HACK is the original cybersecurity ETF and includes companies with both direct and ancillary exposure to the space. The fund uses a market cap-weighted allocation across the infrastructure provider and service provider categorizations as well as an equal-weighted allocation for all components within each sector allocation.
HACK has been around since 2014 and has returned 15% annually over its life.
iShares Cybersecurity and Tech ETF (IHAK)
IHAK provides access to companies at the forefront of cybersecurity innovation. It's fairly broad-based and targets companies that generate at least half of their revenues from the cybersecurity space. That could include hardware or software activities, such as network security equipment producers, network security software providers and aerospace & defense IT service providers.
IHAK is also the cheapest fund in this space with an expense ratio of 0.47%.
Global X Cybersecurity ETF (BUG)
BUG is a market cap-weighted portfolio that requires qualifying components derive at least 50% of their revenues from cybersecurity activities. These could include the development and management of security protocols, systems, networks, applications, computers, and mobile devices.
There are currently 27 names in the fund.
Volt Cloud & Cybersecurity Disruption ETF (VCLO)
VCLO is the newest entry into the cybersecurity space having only debuted on 12/31/2020. With just over $1 million in assets, it's probably more worth watching at the moment than actual investing, but it's such a unique strategy that it definitely should remain on the radar.
VCLO looks to target just the biggest winners of tech disruption. It's incredibly concentrated as 40% of assets are committed to only Snowflake and CrowdStrike. On top of that, another 25% of assets are invested in the QQQ ETF.
In addition to the underlying equity positions, it adds call option positions on Snowflake and CrowdStrike in order to enhance upside, while buying protective put positions on the QQQ to offer some downside protection.
It's also worth mentioning that VCLO isn't necessarily a pure cybersecurity play. Its focus is on both cloud and cybersecurity plays.