Thematics Unlocked: Signs of a maturing ETF market - Page 17

Exchange Commission said it was considering making it mandatory for investment managers and funds to implement cyber risk policies and disclose cyber incidents to current and prospective clients .
From the beginning of May , it became compulsory for US banks to notify regulators within 36 hours of a cyberattack taking place – following a report by cloud company VMware which found cybercrime against financial institutions jumped 63 % over the past year .
Speaking on growing regulatory pressure and fines imposed on companies due to cybersecurity incidents , Versace said : “ Some of the fines are punitive , without a doubt . It is a major pain point for companies .”
Echoing his thoughts , Venkatramanan argued : “ Regulation should promote more security , it should build up awareness and push people towards secure solutions , but regulation should not penalise the victims .”
This last point is certainly up for debate . In fact , taking sufficient steps to protect customers from cyber threats is an increasingly important but underappreciated part of corporate responsibility .
Supporting this , US-based cybersecurity provider Arctic Wolf found that half of the 300 IT security decision-makers it surveyed believe their organisation ’ s cybersecurity budget “ fails to meet the minimum figure they need to remain on track with their security goals ”.
Growing tech applications and networks and more sophisticated criminals will require actors on different levels to continue upgrading their defences to protect the increasingly techintegrated parts of society . This
ETF Name AUM ($ m ) L & G Cyber Security UCITS ETF ( USPY ) iShares Digital Security UCITS ETF ( LOCK ) First Trust Cybersecurity UCITS ETF ( CIBR ) Rize Cyber Security & Data Privacy UCITS ETF ( CYBR ) WisdomTree Cybersecurity UCITS ETF ( WCBR ) Global X Cybersecurity UCITS ETF ( BUG )
2700 1500
steady , growing stream of capital is what makes cybersecurity a theme to watch among ETF investors .
A breakdown of cybersecurity ETFs
While the structural long-term theme is clear to see , selecting which cybersecurity ETF to invest in is a challenge , with each of the six ETFs in Europe tracking a different index .
Despite spotty performance so far in 2022 , cybersecurity ETFs in Europe house almost $ 5.1bn in assets under management , with every product in the sector booking impressive inflows .
After launching last May , the $ 451m First Trust Cybersecurity UCITS ETF ( CIBR ) has almost doubled in size , with $ 203m in inflows , according to data from ETFLogic . CIBR has only been slightly outgunned by the veteran $ 2.7bn L & G Cyber Security UCITS ETF ( USPY ) and the $ 1.5bn iShares Digital Security UCITS ETF ( LOCK ), which have collected $ 290m and $ 326m in new assets , respectively .
Despite tumbling -19.7 % over the past six months , CIBR has finished top of the pile in the sector over this period with equivalents from LGIM , BlackRock , WisdomTree and Rize ETF falling between 22.4 % and 33.7 % apiece , according to justETF , as central bank interest rate hikes destroyed any resilience cybersecurity valuations had displayed to drawdowns earlier in the year .
However , as the performance dispersion between the ETFs might suggest , investors would be wise to dig into the differences
451 125 65 14
TER (%) 0.69 0.4 0.6 0.45 0.45 0.5
Chapter 3 : Themes in focus
Index ISE Cyber Security UCITS index STOXX Global Digital Security index Nasdaq CTA Cybersecurity index Foxberry Tematica research Cybersecurity and Data Privacy index WisdomTree Team 8 Cybersecurity index Indxx Cybersecurity index
* as of 9 May
between the products beneath their cybersecurity labels .
For instance , five ETFs offer exposure to between 29 and 53 stocks , whereas BlackRock ’ s LOCK is the odd one out with its far less concentrated basket of 119 companies . Reflecting this , LOCK ’ s holdings have overlap ratios with other ETFs in the product class ranging from 0.45 to 0.58 versus 0.81 for USPY and CIBR , and 0.72 for USPY and the Rize Cyber Security & Data Privacy UCITS ETF ( CYBR ).
Out of the two longer-standing ETFs , the more concentrated portfolio appears to have outperformed , with USPY boasting annualised returns of 11.7 % over the past three years versus 8.8 % for LOCK ’ s more diversified offering . However , USPY carries a significantly higher total expense ratio of 0.69 % against LOCK ’ s 0.40 % – with the respective advantages in spreads on primary listing and securities lending returns cancelling each other out . Despite their differences , all six strategies in the cybersecurity class react in a similar way to market events . According to ETFLogic , correlation ratios only go as low as 0.87 between the performance trends of the most dispersed ETFs – LOCK and the $ 65m WisdomTree Cybersecurity UCITS ETF ( WCBR ) – with a high of 0.98 between CIBR and the $ 14m Global X Cybersecurity UCITS ETF ( BUG ).
Jamie Gordon is a reporter at ETF Stream