PureFunds to Stop Hackers with This Cyber Security ETF
While technology has undoubtedly improved our lives, it has brought with it a new avenue for criminals, namely ‘cyber-crime’. Enterprises and government agencies continue to suffer incessant cyber-attacks and are always in the need of more stringent cyber security in order to protect themselves from hackers (read: Guide to Internet ETFs).
In September only, a series of cyber attacks hit a five U.S. banks including J.P. Morgan (JPM). The hackers reportedly gained access to the networks of the banks, draining out large quantities of data including savings account information. Though the issue resulted in a loss of sensitive data, it could not create havoc or take truly sensitive data (read: Will Cyber Attack Halt Rally in Financial ETFs?).
Probably sensing this need of the hour, PureFunds rolled out a new ETF based on the cyber theme on November 12, trading under the symbol of HACK. In keeping with its ticker code, the product looks to invest in companies those ensure the safety of computer hardware, software, networks and fight against any sort cyber malpractices.
HACK in Detail
The product intends to track the performance of the ISE Cyber Security Index. The fund holds 30 hardware or software companies. As much as 85.54% of holdings hail from the U.S. followed by 8.96% from Israel, 3.76% from Japan and the rest from the Netherlands. The fund looks to charge 75 bps in fees.
VASCO Data Security International Inc. (9.18%), Imperva Inc. (7.91%) and Qualys Inc. (5.62%) were the top three holdings of the index. No company in the index can occupy more than 20% of the portfolio. The fund invests about three-fifth of its portfolio in the top 10 holdings.
This results in considerable concentration risk. Sub-industry wise, the fund puts nearly 60% of assets in Systems Software. The second biggest industry of the ETF is communications equipment which takes around 18% of the basket.
How Does it Fit in a Portfolio?
The fund provides a good opportunity for investors to play the niche area of cyber security, a market where there is both much hype and promise. Per McAfee, cyber crime is a fast expanding industry with high returns and low risks. McAfee projects that cybercrime costs the globe over $400 billion per year (read: 3 Sector ETFs Cheering Mid-Term Republican Win).
On the other hand, according to the 2013 Cost of Cyber Crime Study, enterprises threatened by cybercrime shell out an average of $11.56 million to recover over a 10-month period, which has increased 78% since the time the study was first completed four years ago. This hopeful data should urge investors to take special notice of the cyber security space.
ETF Competition
There will not be any real competitor to HACK, as the product is very unique. There are, however, a couple of niche ETFs currently on the market that may attract such investors though hardly any product follows the similar investment objective.
The set of other products generally focus on technology and zero in on high growth segments like HACK seeks to do. In particular, First Trust ISE Cloud Computing Index Fund (SKYY), Robo-Stox Global Robotics and Automation Index ETF (ROBO), DJ Internet Index Fund (FDN) and Nasdaq Internet Portfolio (PNQI) can emerge as distant peers to HACK (read: Invest in Robotics with This New ETF).
Within one year of its launch, ROBO accumulated around $103 million in assets while SKYY and PNQI has each amassed over $300 million in assets. Among the above-mentioned ETFs, FDN is a billion-dollar fund which has built up more than $1.84 billion in assets.
SKYY, PNQI and FDN charge lesser than the newly launched ETF while ROBO’s fees appear higher at 95 bps. In short, the proposed fund is a moderately option. So, on the cost front, HACK should not face any trouble in amassing investors’ money. Its exclusive investment objective should make it a winner over the longer term.
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