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Cybersecurity Stocks & ETFs Soar after Massive Hack

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A massive cyber-attack, targeting as many as 18,000 US companies and government agencies, was unearthed recently. The hackers infiltrated the systems of SolarWinds, a network management company, which has thousands of security agencies, local governments, large companies, including defense contractors, among its clients.

At least 200 organizations including some cabinet-level departments were compromised. While preliminary findings suggest that no classified information was compromised, the full extent of the damage will not be known for months, if not years. And in fact, it is suspected to be the part of a broader cyber espionage campaign that could have been going on for years. The attack has highlighted the need to strengthen our cyber defenses and spending on these products and services is likely to go up significantly.

Additionally, we have seen years’ worth of digital transformation in months in the wake of the pandemic. The digital transformation has further increased the risk of security breaches and threats.

There are four cybersecurity ETFs currently available to investors.  The ETFMG Prime Cyber Security ETF (HACK - Free Report) tracks a modified equal weighted index of companies providing cyber security solutions. It has an expense ratio of 60 basis points. Cloudflare (NET - Free Report) and Cisco (CSCO - Free Report) and FireEye (FEYE - Free Report) are its top holdings.

The First Trust Nasdaq Cybersecurity ETF (CIBR - Free Report) , which launched in 2015, is now the largest ETF in the space. It follows a modified liquidity weighted methodology. Crowdstrike (CRWD - Free Report) , Okta (OKTA - Free Report) and Zscaler (ZS - Free Report) are its top holdings. It has the same expense ratio as HACK.

The iShares Cybersecurity And Tech ETF (IHAK - Free Report) is the cheapest product in the space, with an expense ratio of 0.47%.  The Global X Cybersecurity ETF (BUG - Free Report) , the latest entrant in the space, charges 50 basis points. It tracks a modified market cap index.

(In full disclosure, Neena owns shares of IHAK in the ETF Investor Portfolio.)

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