There are valid reasons to critique some niche exchange traded funds, including the vulnerabilities that come along with excessive allocations to a small number of stocks and what happens to these funds when investors sour on a particular investment theme.
Fortunately for the PureFunds ISE Cyber Security ETF (NYSEArca: HACK), it is not dominated by just one or two stocks. More importantly, the cyber security investment theme continues gaining merit. Case and point: Data out Tuesday from the U.K. indicating that the cost of dealing with online data breaches there has more than doubled over the past year.
“The average cost of the most severe online breaches for large companies now starts at about $2.24 million, up from about $921,000 last year,” reports Rachel King for the Wall Street Journal.
That is bad news for companies and organizations that are victimized by nefarious hacks, but as its Wednesday performance shows, it is good news for HACK. The ETF, which in its brief history has shown a penchant for responding to an array of cyber security-related headlines, is up 2.2% today and earlier touched an all-time high. Volume in HACK is more than double the daily average. [Volume Soars in Cyber Security ETF]
HACK has surged almost 7% over the past three months, nearly tripling the gains offered by the Nasdaq Composite over the same period. Over that time, FireEye (NasdaqGS: FEYE) and Infoblox (NasdaqGS: BLOX), HACK’s second- and third-largest holdings, are each up nearly 9%.
HACK benchmarks to the ISE Cyber Security Index, “which tracks the performance of companies actively engaged in providing services for cyber security and for which cyber security business activities are a key driver of their business model. These cyber security services are designed to protect computer hardware, software, networks and data from unauthorized access, vulnerabilities, attacks and other security breaches,” according to PureFunds.
While HACK may be seen as a niche ETF or a “satellite holding,” the long-term merit of the cyber security investment theme is irrefutable. For example, cyber crime will cost $2 trillion by 2019, according to Juniper Research, indicating that demand for the products and services offered by HACK’s 31 holdings will surge. [North Korea Hates This ETF]
Investors are already making that bet. In mid-April, HACK was home to just over $550 million in assets under management. Nine trading days later, that number swelled to $653 million and that growth is continuing as HACK entered trading today with $774.7 million in AUM, according to PureFunds data.
PureFunds ISE Cyber Security ETF