Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what is actually inside our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will talk a bit about the counter, why I had selected it and what lies ahead in the future.
Today, I shall introduce a thematic exchange traded fund (ETF) and that is the ETFMG Prime Cyber Security ETF (ticker: HACK).
The Everpresent Threat
I had identified cybersecurity as one of the sectors to go into back in Dec 2017 after analysing the then-trends and formulating a series of educated guesses, or “guesstimates” as I liked to call them. The field of cybersecurity has evolved from simple antivirus programs and software back in the 1980s to combatting threats from not just the virtual realm (worms, trojans, etc.) but also of human origin, too (hackers, crypto thieves, etc.).
The importance of cybersecurity has never been so high now, with malware attacks happening daily, and cryptocurrencies and personal information being the new targets. Just a few days ago, a crypto exchange was subjected to hacking and millions of dollars’ worth of cryptocurrencies were pilfered.
There are a number of cybersecurity ETFs around and all are listed overseas. The top two ETFs in terms of asset-under-management (AUM) are HACK and the First Trust NASDAQ Cybersecurity ETF (ticker: CIBR). Comparatively, HACK is smaller than CIBR in terms of AUM, though both have the same expense ratio (0.6%)1. The main reason on why I chose HACK over CIBR was that the former is more diversified. HACK has a total of 64 holdings2 compared to CIBR’s 363, and HACK’s top ten holdings constituted 24.98% of the ETF2 while CIBR’s is 45.28%3. Furthermore, there are some overlap holdings between the two, such as Cisco Systems, Palo Alto Networks, Tenable Holdings, etc.
The global cybersecurity market is forecasted to grow to USD 345.4 billion by 2026, up from the projected USD 217.9 billion by the end of 20214. With the huge prevalence of computers and mobile devices, digital life and virtual stuff, and as long as there are people with ill-intent (whether individuals, groups or state-sponsored), the threat is always there.
Bought HACK at:
USD 61.00, January 2021
1 – ETFDB.com. Though most of the other cybersecurity ETFs have lower expense ratios than that of HACK’s and CIBR’s, I had shortlisted the latter two due to their AUM size.
2 – HACK factsheet. 30 Sep 2021. https://etfmg.com/wp-content/uploads/2019/03/HACK-FactSheet_2021-Q3-1.pdf (accessed 12 Dec 2021)
3 – CIBR factsheet. 30 Sep 2021. https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=c2f736cb-ccbf-45c5-9dee-fc2170b5114a (accessed 12 Dec 2021)
4 – Size of the cybersecurity market worldwide from 2021 to 2026. Statista.com. August 2021. https://www.statista.com/statistics/595182/worldwide-security-as-a-service-market-size/ (accessed 12 Dec 2021)