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Cybersecurity Threats from China Persist: ETFs in Focus

Cybersecurity threats have become a growing concern over the past few years. Billions of dollars have been spent by companies for keeping their systems hacking proof. The latest insight from Irvine, CA-based company CrowdStrike revealed that the threat still persists for the U.S. even when President Barack Obama and Chinese President Xi Jinping signed their cyber-agreement at the end of last month.

As per CrowdStrike, Chinese hackers have continuously attempted cyberattacks against technology and pharmaceuticals companies in the U.S. with the purpose of stealing intellectual property and trade secrets. The cybersecurity company, closely associated with the U.S. government, revealed that it has documented seven of such cyberattacks by Chinese hackers in the past three weeks.

The cybersecurity agreement between China and the U.S. banned cybersecurity breaches aimed to steal trade secrets for the benefit of competitors. However, it does not restrict cyberspying for national security purposes.

Enterprises and government agencies constantly face cyber-attacks and are always in the want of rigorous cyber security to fight hackers. Per the Center for Strategic and International Studies and McAfee, cyber crime is a fast expanding industry with high returns and low risks. Their study projects that cybercrime costs the world over $400 billion per year.

The latest report on cyber intrusions suggests that cybersecurity still remains the need of the hour and highlights the importance of cybersecurity firms to thwart cyberattacks. As a result, the ETFs focusing on these cybersecurity firms draw our attention due to huge demand for cyber protection. Two of these ETFs include (see all Technology ETFs here):

PureFundsISE Cyber Security ETF ( HACK )

HACK offers global exposure to those companies that ensure safety to computer hardware, software and networks, and fight against any sort of cyber malpractice. It tracks the ISE Cyber Security Index, holding 35 securities in its basket. It is well spread out across components, as each security holds no more than roughly 4.5% of total assets. From an industrial view, systems software accounts for more than half of the portfolio while communications equipment and internet software & services round off the top three (read: Inside 5 Best Performing Stocks of the Cyber-Security ETF ).

In terms of country exposure, U.S. firms take the top spot in the fund at 70.7%, while Israel and Japan take the next two spots with 16.2% and 3.9% shares, respectively. The fund has amassed $1.1 billion in AUM and charges a hefty 75 bps in fees per year from investors. Volume is solid as it exchanges 897,000 shares in hand per day. HACK was up 5.6% in the past one year (as of October 16, 2015) (read: 3 Unique ETFs Beating the Market ).

First Trust NASDAQ CEA Cybersecurity ETF ( CIBR )

CIBR, debuted in July this year, follows the Nasdaq CEA Cybersecurity Index, which measures the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. The product holds 34 stocks in its basket with the top 10 firms dominating the returns at 46.79%. It is skewed toward software industry at 45.93%, while communications equipment and internet software & services round off the top three with double-digit allocation each.

Like HACK, U.S. firms dominate with 68% of CIBR while the Netherlands, Israel, China and many others make up for single-digit allocation. The fund has successfully accumulated $82 million in its asset base and trades in an average volume of 110,000 shares per day. It charges 60 bps in fees and was down 9.8% since its launch (read: First Trust Launches Cybersecurity ETF CIBR ).

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PURFDS-ISE CYBR (HACK): ETF Research Reports

FT-NDQ CEA CYBR (CIBR): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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