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Cybercrimes are skyrocketing, and the best cybersecurity ETFs are following. This article will explore those funds and help you decide which is best for your portfolio.
Best Cybersecurity ETFs: Background
Cybersecurity is the practice of protecting networks, devices, and data from unauthorized access or criminal use and the practice of ensuring confidentiality, integrity, and availability of information.
Demand for cybersecurity will continue to increase as more of the physical world shifts to the digital realm.
Between 2019 and 2020, ransomware attacks rose by 62% worldwide and 158% in North America alone.
Global ransomware costs are expected to reach $20 billion in 2021, representing a 57-fold increase from $325 million in 2015.
Additionally, general cybercrime costs are estimated to be $6 trillion in 2021 and expected to rise at a rate of 15% each year through 2026, according to the latest report from Cybersecurity Ventures.
While these are unfortunate realities, they have underscored the importance of having proper cyber hygiene.
Gone are the days that companies cheap out on cybersecurity. A result that bodes well for cybersecurity stocks and ETFs.
Best Cybersecurity ETFs
The cybersecurity landscape is still in its infancy, which is why owning an ETF might be better than buying an individual stock in the space. Let’s jump into the funds.
#1. First Trust NASDAQ Cybersecurity ETF (CIBR)
- Performance over 1-Year: +11%
- Expense Ratio: 0.60%
- Assets Under Management: $6.0 billion
- Number of Holdings: 42
The First Trust Nasdaq Cybersecurity ETF (CIBR) invests in companies involved in the “building implementation, and management of security protocols applied to private and public networks, computers, and mobile devices to provide protection of the integrity of data and network operations.”
Two of CIBR’s top holdings, Zscaler and CrowdStrike, are the consensus leaders of the cybersecurity space.
CrowdStrike’s proprietary “Threat Graph” uses artificial intelligence and machine learning to stop breaches before they happen – and companies are lining up for it.
CrowdStrike’s products are used by 58 of the Fortune 100 companies and 12 of the top 20 banks. The company has nearly 10,000 subscription customers and a dollar-based retention rate of 125% per subscription customer.
It’s no wonder why people are calling CrowdStrike the “Salesforce of Security.”
However, 93.5% of CIBR is not CrowdStrike. Let’s look at the other top holdings in the fund.
CIBR Top Holdings:
- CrowdStrike Holdings Inc (CRWD) 6.50%
- Palo Alto Networks (PANW) 5.98%
- Cisco Systems Inc (CSCO) 5.70%
- Zscaler (ZS) 5.45%
- Cloudflare (NET) 4.90%
#2. ETFMG Prime Cyber Security ETF (HACK)
- Performance over 1-Year: -6%
- Expense Ratio: 0.60%
- Assets Under Management: $1.9 billion
- Number of Holdings: 70
The ETFMG Prime Cyber Security ETF (HACK) is “a portfolio of companies providing cybersecurity solutions that include hardware, software, and services.”
Initially launching in 2014, HACK was the first ETF to target the cybersecurity industry.
HACK has more holdings than CIBR, 70 versus 42, but both funds are equally concentrated in their top ten names.
HACK Top Holdings:
- CrowdStrike (CRWD) 5.09%
- Splunk (SPLK) 4.86%
- BAE Systems (BA) 4.77%
- Palo Alto Networks (PANW) 4.76%
- Akamai Technologies (AKAM) 4.70%
#3. Global X Cybersecurity ETF (BUG)
- Performance over 1-Year: +12%
- Expense Ratio: 0.50%
- Assets Under Management: $1.3 billion
- Number of Holdings: 32
The Global X Cybersecurity ETF (BUG) seeks to invest in “companies that stand to potentially benefit from the increased adoption of cybersecurity technology, such as those whose principal business is in the development and management of security protocols preventing intrusion and attacks to systems, networks, applications, computers, and mobile devices.”
BUG is one of Global X’s many thematic ETFs that enable investors to access emerging themes, from cloud computing to robotics and artificial intelligence.
BUG is similar to the first ETF we covered, CIBR: each are highly concentrated into the category leaders, have around 40 total constituents, and a similar expense ratio.
BUG Top Holdings:
- Palo Alto Networks (PANW) 8.24%
- Check Point Software Technologies (CHKP) 7.89%
- Fortinet (FTNT) 6.14%
- NortonLifeLock (NLOK) 5.43%
- Tenable Holdings (TENB) 5.34%
#4. iShares Cybersecurity and Tech ETF (IHAK)
- Performance over 1-Year: +0%
- Expense Ratio: 0.47%
- Assets Under Management: $617 million
- Number of Holdings: 54
The iShares Cybersecurity and Tech ETF (IHAK) provides access to companies “at the forefront of cybersecurity innovation” along the full value chain of cybersecurity and tech industries.
IHAK consists mostly of mid-cap companies between the size of $2.7 and $12.9 billion.
This is the second smallest ETF on our list by AUM.
IHAK also has the second-lowest expense ratio amongst cybersecurity ETFs.
IHAK Top Holdings:
- Citrix Systems (CTXS) 5.41%
- Check Point Software Technologies (CHKP) 5.09%
- Palo Alto Networks (PANW) 4.77%
- Juniper Networks (JNPR) 4.47%
- CrowdStrike (CRWD) 4.46%
#5. WisdomTree Cybersecurity Fund ETF (WCBR)
- Performance over 1-Year: -12.18%
- Expense Ratio: 0.45%
- Assets Under Management: $37 million
- Number of Holdings: 30
The WisdomTree Cybersecurity ETF (WCBR) launched in January 2021 and is the newest, smallest, and lowest-cost ETF on this list.
WisdomTree partnered with Team8 to construct the index that WCBR tracks. Team8 is a global venture group that does research at the intersection of cyber, data, AI, and fintech.
WCBR is constructed by WisdomTree and Team8’s proprietary methodology that increases exposure to companies that are exhibiting both “fast revenue growth” and “involvement in an array of cybersecurity development themes.”
These themes include Cloud Security, Security of Things, Perimeterless World, Privacy & Digital Trust, Resilience & Recovery, Shift-Left, and Smarter Security.
Companies that best satisfy WisdomTree’s methodology receive higher allocations in the fund.
WCRB Top Holdings:
- Ping Identity (PING) 4.86%
- SailPoint Technologies (SAIL) 4.86%
- HashiCorp (HCP) 4.75%
- CrowdStrike (CRWD) 4.65%
- Palo Alto Networks (PANW) 4.53%
Alternatives to the Best Cybersecurity ETFs
One alternative to investing in cybersecurity ETFs is to buy individual cyber stocks instead. This alternative sacrifices diversification for the chance of higher returns.
Another option is investing in public cloud providers like Amazon, Microsoft, and Google. These three will likely offer more substantial cybersecurity products and services in the coming years.
If you’re seeking exposure to thematic trends, consider ETFs and stocks in other booming industries like biotech, fintech, space, blockchain, or AI.
If none of these are appropriate for your investing goals, opt for low-cost benchmark funds that track the S&P 500, Dow Jones Industrial Average, or Nasdaq-100.
Best Cybersecurity ETFs: Risks
Cybersecurity stocks tend to trade at higher valuations and are considered ‘expensive’ relative to other stocks in the market.
For example, CrowdStrike has a price-to-sales ratio of 31 versus Microsoft at 13.
Growth stocks like CrowdStrike and Zscaler are typically more volatile as well, and these are the stocks that have significant holdings in cybersecurity ETFs.
Before investing in a cybersecurity ETF, ask yourself the following:
- Have gains already been priced into cybersecurity ETFs and stocks?
- What are the advantages to owning a cybersecurity ETF versus category leaders in the space?
- Will the FAAMG stocks eat away at the current cyber landscape?
- Which of the five cybersecurity ETFs has the best combination of holdings, expense ratio, and management for your portfolio?
- Is demand for cybersecurity going to increase in the next ten years?
- Can companies cut their cybersecurity budget during economic downturns?
Best Cybersecurity ETFs: FAQs
What is the best ETF for cybersecurity?
Here are the best ETFs for cybersecurity:
- First Trust NASDAQ Cybersecurity ETF (CIBR)
- ETFMG Prime Cyber Security ETF (HACK)
- Global X Cybersecurity ETF (BUG)
- iShares Cybersecurity and Tech ETF (IHAK)
- WisdomTree Cybersecurity Fund ETF (WCBR)
Is CIBR a good ETF?
CIBR is a good ETF for those seeking exposure to the best cybersecurity stocks. CIBR is the largest cybersecurity ETF by assets under management and invests in name like CrowdStrike and Zscaler. However, it is also the most expensive cybersecurity ETF to own, with an expense ratio of 0.60%.
What is the HACK ETF?
The HACK ETF is an exchange-traded fund that provides access to leading cybersecurity companies like Darktrace (LN: DARK), Cloudflare (NET), Cisco Systems (CSCO), Fortinet (FTNT), and Splunk (SPLK). HACK is the ticker symbol for the ETFMG Prime Cyber Security ETF.
When was the HACK ETF created?
The HACK ETF was created on November 11, 2014, as the first ETF to target the cybersecurity industry. It is now the second-largest cybersecurity ETF by assets under management.
Bottom Line: Best Cybersecurity ETFs
There you have it — the five best cybersecurity ETFs on the market. Now you can gain diversified exposure to one of the world’s fastest-growing industries.
This article is for informational purposes only. It is not intended to be investment advice. To learn more about how we chose the Best Cybersecurity ETFs, read our strict editorial guidelines and research framework for public equities.
This article was updated on May 5th, 2022 to reflect the changes in performance and characteristics of each fund.