The year 2015 may have been soft for the cyber security ETFs, but the craze for issuing more cyber security funds has not abated at all. Issuers are still seeing long-term prospects in it. Most recently, ETF issuer Global X announced plans to dip its toes into the space and filed for a Cybersecurity ETF.
Inside the Proposed Fund
The fund looks to track the Cyber Security Index. The fund invests a minimum of 80% of its total assets in global securities and in ADRs and GDRs based on the securities in the underlying index, per the filing.
How Does It Fit in the Portfolio?
The newly filed ETF can be a good choice for investors seeking exposure to the fast-growing and high-potential space of cyber security. While technology has been a great boon to mankind, it has lugged with it the ills of ‘cyber-crime’. Enterprises and government agencies constantly face cyber-attacks and are always in the want of rigorous cyber security to fight hackers (read: Guide to Internet ETFs).
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.
Also ‘Key Findings from the Global State of Information Security Survey 2015’ by PWC indicated that cyber security instances increased at a CAGR of 66% from 2009. These data clearly explain the latent potential of the newly filed product (read: How to Invest in Emerging Technologies of the Future with ETFs).
While no one has any doubt over the success of the fund, provided it gets an approval, thanks to the budding potential in the space, competition seems to be a little tough. PureFunds ISE Cyber Security ETF (HACK) and First Trust NASDAQ CEA Cybersecurity ETF (CIBR) are presently operating in the regular cyber security field with about $1.02 billion and $105.8 million, respectively. HACK is about a year old while CIBR is just six-months old. HACK charges 75 bps and CIBR charges 60 bps as fees (read:First Trust Launches Cybersecurity ETF CIBR).
Investors should also note that, Direxion – a renowned player in the leveraged and inverse leveraged ETF world – is also in the arena with two products focusing on the cyber security sector – one providing a leveraged bull play and the other an inverse leveraged bear play. Bull ETF Direxion Daily Cyber Security Bull 2X Shares ETF looks to offer double the daily exposure to the ISE Cyber Security Index while Direxion Daily Cyber Security Bear 2X Shares ETF gives twice the opposite exposure of the daily performance of the same index (read: Inside Direxion's Bull & Bear Cyber Security ETFs).
If Global X fund manages to get an approval, it needs to offer competitive expense ratio and a better balancing in portfolio to garner investors’ assets. After all, the proposed fund lacks the first-mover advantage. So, to beat HACK and CIBR over the long term, the proposed fund should offer attractive options as far as exposure, stock-specific concentration risk and expense ratios are concerned.
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(We are reissuing this article to correct a mistake. The original article, issued on December 29, 2015, which incorrectly mentioned the name of the issuer as WisdomTree instead of Global X, should no longer be relied upon.)