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Tapping into the Rapidly Growing Cybersecurity Market Through ETFs

For investors looking to capitalize on the exponential growth in the global cybersecurity market, thematic indexes and linked exchange-traded funds (ETFs) provide the opportunity to tap into innovative companies combatting global cyber threats.

As digitalization rapidly accelerated during the global pandemic, cybersecurity has become essential for companies seeking to safeguard their data and protect their customers. With many companies transitioning to digital platforms or increasingly leveraging technologies, such as the cloud and artificial intelligence, the global cybersecurity market has grown exponentially—and is only expected to increase in the coming years. For investors looking to capitalize on the exponential growth in the space, thematic indexes and linked exchange-traded funds (ETFs) provide the opportunity to tap into innovative companies combatting global cyber threats.

Cyberattacks have been increasing over the past several years, and amid Covid-19, cybercriminals took advantage of the dependence on technology, using phishing, spoofing, extortion, and various types of internet-enabled fraud to target the most vulnerable in our society. According to the FBI’s 2020 Internet Crime Report, the Bureau’s Internet Crime Complaint Center received a record number of complaints from the American public in 2020, totaling more than 791,000, with reported losses exceeding $4.1 billion. The report noted that business e-mail compromise schemes were the costliest, with over 19,000 complaints and an adjusted loss of approximately $1.8 billion. Phishing scams and ransomware incidents were also prominent in 2020, with 241,342 complaints and 2,474 incidents, respectively.

Considering how costly cyberattacks are, companies are taking these threats seriously, with a majority of Chief Information Officers prioritizing cybersecurity spending for this year. According to research firm Gartner, cybersecurity was the top priority for new spending, with 61% of the more than 2,000 CIOs surveyed increasing investment in cyber/information security in 2021. 

As companies allocate resources to combat these threats, the global cybersecurity market swelled to $153 billion in 2020, according to an industry report by Fortune Business Insights. Driven by the increasing use of e-commerce platforms and artificial intelligence, the cloud and, more broadly, the internet of things, the market shows no signs of slowing growth. In fact, the market is projected to grow from $165 billion in 2021 to $366 billion in 2028 at a compound annual growth rate of 12.0%.

With the cybersecurity market expanding, cybersecurity stocks have been performing well. For investors looking for exposure to a wide range of cybersecurity companies, Nasdaq’s cybersecurity indexes and linked funds track the performance of the companies that provide hardware, software and services.

The Nasdaq CTA Cybersecurity IndexSM (NQCYBR) is designed to track the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. The index is comprised of 36 companies, which are primarily involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices to protect the integrity of data and network operations.

Several global ETFs track the index. For instance, the First Trust Nasdaq Cybersecurity ETF (CIBR), which has $4.6 billion assets under management (AUM) in the U.S. and London, has outperformed the S&P 500 over the last year. Another is the BetaShares Global Cybersecurity ETF (HACK), a fund with $657 million AUM that can be traded on the Australian Securities Exchange. The ProShares Ultra Nasdaq Cybersecurity ETF (UCYB), with $3.8 million AUM, is also available to investors in the U.S.

Meanwhile, other global ETFs track Nasdaq’s ISE Cyber Security Index (HXR), including Cathay Cyber Security ETF, with $38.7 million AUM in Taiwan, and the L&G Cyber Security UCITS ETF (ISPY), which has $2.8 billion AUM in Europe.

“Those who are interested in the cybersecurity sector but are not able to invest directly in the global cyber security stocks should consider this ETF,” said Eddie Cheng, head of the ETFs Team of Cathay.

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