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Cybersecurity? There’s a fund for that
Electronic security breaches make headlines so frequently that there is now a fund that lets you invest in firms fighting that troublesome trend. The PureFunds ISE Cyber Security Exchange Traded Fund (with the somewhat predictable ticker of HACK) was launched late last year.
Created by a New Jersey investment firm that manages only one other ETF, HACK is one of the latest in a growing number of new ETFs that invest in stocks that revolve more around a particular theme rather than an industry or a broader index. Other thematic ETFs recently created include funds that invest in genomics, social media, robotics, and nuclear-energy companies.
Your driving data is at risk. Read, “Can you car get hacked?"
As far as niche ETFs go, HACK has some good attributes. Although six months isn’t enough time to evaluate any investment performance, HACK is up 26 percent so far in 2015, while broad market U.S. stock indexes were little changed over that same period. And HACK’s 32 stock holdings will help protect investors from the risk of being overinvested in a single stock. (Some thematic ETFs have held as few as four stocks.)
But diversification among stocks is not the same as diversification among assets. If tech stocks sell off, most of HACK’s holdings will lose value in tandem. And naturally, considering the relative newness of cybercrime, many of the stocks in HACK aren’t well established: Half of the cybersecurity companies have been public for less than five years. Smaller firms, such as CyberArk, Infoblox, and FireEye, the three largest holdings of HACK, outnumber more established large-cap holdings such as Cisco, Symantec, and Japan’s Trend Micro.
The HACK ETF has an annual expense ratio of 0.75 percent, which is certainly more expensive than the core holdings of broadly-based ETFs, which often sport expense ratios of less than 0.10 annually. You might, for instance, be able to build a similar bespoke investment for less using a specialized brokerage such as Motif Investing. But the more important point is that thematic investing speaks more to our speculative urges than to the notion of investing for the long term: History is littered with investment themes that flamed out.
—Chris Horymski
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