The cybersecurity sector has been performing well in recent weeks, outpacing the broader tech market despite concerns about rising interest rates. The Technology Select Sector SPDR Fund (XLK), a popular tech ETF, has gained about 4% in the past month, while the WisdomTree Cybersecurity Fund (CIBR) has seen a 9.6% increase (as of Dec 8, 2023) (read: Here’s Why Cybersecurity ETFs Are At a 52-Week High).
During the second-quarter earnings season, cybersecurity companies emerged as winners, while mega-cap tech stocks delivered mixed results. With the growing adoption of AI technology, the importance of cybersecurity is becoming increasingly evident.
As more companies across various sectors integrate generative AI and other technologies into their daily operations, cyberattacks are on the rise. One area experiencing significant growth in cybersecurity spending is cloud security products and services, highlighting the need to secure cloud-based systems and data.
In response to this trend, Themes ETFs recently launched a pureplay cybersecurity ETF called the Cybersecurity ETF SPAM. Let’s take a closer look.
The Themes Cybersecurity ETF (SPAM) aims to track the Solactive Cybersecurity Index, which identifies the 35 largest companies in digital security software based on market capitalization. The fund charges a fee of 35 basis points.
The top three holdings in the fund are Crowdstrike Holdings (5.81%), Varonis Sys (5.71%), and Trend Micro (5.7%). The United States holds the majority share of the fund at 67.6%, followed by Israel (10.5%) and Japan (7.8%).
The demand for cybersecurity continues to rise due to the increasing financial losses from cybercrime. According to the FBI Internet Crime Report, total financial losses from cybercrime have surged 281% over the past five years, reaching $10.3 billion in 2022 alone. Business leaders are proactively addressing this issue, with 91% believing that a “catastrophic cyber event” is likely. As a result, they are boosting their cybersecurity capabilities.
Furthermore, 93% of business executives are already using or considering using AI for cybersecurity operations. This is driving the demand for digital security, with projected spending of $101.5 billion by 2025, according to IBM Institute for Business Value and McKinsey & Company.
Competition in the cybersecurity ETF market is fierce. The largest fund in terms of size is the CIBR, with approximately $5.55 billion in assets, followed by the ETFMG Prime Cyber Security Fund (HACK) with $1.57 billion in assets, and the iShares Cybersecurity & Tech ETF (IHAK) with $698 million in assets. While the former two funds charge 60 basis points in fees, IHAK charges 47 basis points.
Among these existing funds, the WisdomTree Cybersecurity Fund (WCBR) has the lowest expense ratio at 0.45%. However, the newly-launched SPAM has an even lower expense ratio of 0.35%, positioning it well in the market.
For investors looking to capitalize on the growth potential of the cybersecurity sector, the Themes Cybersecurity ETF (SPAM) could be an attractive option. To read more about this article and access other investment recommendations from Zacks Investment Research, you can click here.