First Trust Plans For A Cybersecurity ETF

After the huge success of PureFunds ISE Cyber Security ETF (HACK) within a few months of its launch, the sought-after issuer First Trust plans to dip its toes in the cyber security space. In any case, First Trust is always known for mulling over the smart-beta strategy or unique investment theme. Recently, the issuer filed for a Cybersecurity ETF in association with the Consumer Electronics Association (CEA). The ticker code of the product is CIBR (read: 2 New ETFs with Big Potential).

Inside CIBR

The fund looks to track the Nasdaq(R) CEA Cybersecurity Index and reflects the stock market performance of the firms belonging to the related space in the technology and industrial sectors, per the filing.

The companies which are into the development, execution and supervision of security rules used in private and public networks, computers and various high-tech devices get the entry card to the index. As of now, the index holds 38 companies. The fund has a global foot print having exposure in the U.S., Britain, China, Ireland, Israel, Japan, the Netherlands and South Korea.

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 cyber-crime 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).

ETF Competition

The road ahead for the product is almost clear, provided it gets an approval. Only one ETF, HACK is presently operating in the cyber security field. Despite being only six months old, HACK has garnered close to $775 million in assets and returned over 20%. Since apart from HACK, there is no other option for direct targeted exposure to the entire cyber security space, CIBR should replicate the success of HACK after entering the market.
Investors should note that HACK charges 75 bps in fees. So, to beat HACK over the long term, CIBR needs to charge efficiently. Investors should note that HACK has a first-mover advantage in this space. Hence, exposure, stock-specific concentration risk and expense ratio-wise, CIBR should offer attractive options.