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Time for Cyber Security ETFs Amid Russia-Ukraine Tensions?

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With the Russian incursion into Ukraine and the resultant Western sanctions against Russia hitting the headlines, chances of heavy cybercrime on the global level have come to the fore. Several Ukrainian government websites were offline on Feb 23, 2022 as a result of a mass distributed denial of service (DDoS) attack, a Ukrainian official said, as quoted on a CNBC article.

A DDoS attack happens when a victim’s network or server is so crowded with traffic that others cannot access it. The source of the attack is not yet confirmed. Ukraine reported a separate attack last week that took down four government websites, according to NBC News, quoted on CNBC. Around the same time, Ukraine’s Cyber Police said many residents had received text messages saying that ATMs in the country did not work, though the validity of the message was unclear, NBC News reported.

The White House official on Wednesday told NBC News, “we consider these further incidents to be consistent with the type of activity Russia would carry out in a bid to destabilize Ukraine. We are in communication with Ukraine regarding their cyber related needs, including as recently as today.”

British officials also warned about “spillover” from any heightened Russian cyber-activity in Ukraine. Although there have been no Ukraine-related Russian attacks on the United Kingdom since the start of the crisis, cyber-specialists have been meeting with key companies to discuss the possible threats and way-outs.

According to an article published on Guardian, in 2017, Russian state actors launched the NotPetya malware against Ukrainian companies, but it spread around the world, affecting a host of western companies and even some Russian corporations. Western spy agencies have previously said that attack was also conducted by GRU operatives.

Meanwhile, the cyber security industry has gained immense popularity and is the fastest-growing corner of the broad technology space. This is because cyber-attacks on enterprises and government agencies are widespread with rapidly growing blockchain, IoT and 5G technology, raising the need for more stringent cyber security from hackers.

As a result, global spending on cybersecurity is growing each year and will continue to increase indefinitely. Alphabet (GOOGL - Free Report) said it would invest more than $10 billion over five years to strengthen cybersecurity and pledged to train 100,000 Americans in technical fields such as IT support and data analytics through its Career Certificate program. Microsoft (MSFT - Free Report) plans to invest $20 billion over five years to deliver more advanced security tools.

As estimated by the research firm Gartner, global cybersecurity spending jumped 13% in 2021 to $172 billion versus 8% growth in 2020. In both 2022 and 2023, Gartner predicts 11% growth in cybersecurity spending, per an article published on investors.com.

Investors seeking to tap the boom in the cyber security market could consider the following ETFs. We have highlighted them in detail below:

ETFs in Focus

ETFMG Prime Cyber Security ETF (HACK - Free Report)

The fund provides global exposure to the cybersecurity industry, comprising companies that offer hardware, software, consulting and services to defend against cybercrime. It tracks the Prime Cyber Defense Index, holding 60 securities in its basket, each accounting for less than 3.34% share. The fund has amassed $1.89 billion in AUM and charges 60 bps in fees per year.

First Trust NASDAQ Cybersecurity ETF (CIBR - Free Report)

This ETF has accumulated nearly $5.05 billion in its asset base and charges 60 bps in annual fees. The fund follows the Nasdaq CTA Cybersecurity Index, which measures the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. In total, the product holds about 40 stocks in its basket.

Global X Cybersecurity ETF (BUG - Free Report)

This ETF offers exposure to the companies that stand to benefit from the increased adoption of cybersecurity technology and follows the Indxx Cybersecurity Index. It holds 34 stocks in its basket with each accounting for less than 6.35% share. The ETF has accumulated $975.7 million in its asset base. It charges 50 bps in annual fees.

iShares Cybersecurity and Tech ETF (IHAK - Free Report)

This fund provides access to companies at the forefront of cybersecurity innovation and follows the NYSE FactSet Global Cyber Security Index. It holds 51 stocks in its basket with each making up for no more than 6.44% of the assets. IHAK has AUM of $526.6 million and charges 47 bps in fees per year.

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