The technology sector, the largest sector weight in the S&P 500, has disappointed to this point in 2016, but some technology exchange traded funds appear poised to rebound if a risk-on rally leads investors back to the sector.
Tech ETF rebound candidates include the PureFunds ISE Cyber Security ETF (NYSEArca: HACK). The once high-flying HACK has not been immune to the recent pullbacks endured by previously high-flying sectors. Still, the case for the ETF remains solid because of a steady stream of cyber security breaches.
According to Goldman Sachs, there have been 17 high-profile cyber security breaches since the second quarter of 2014 involving companies such as Apple (NasdaqGS: AAPL), Tesla (NasdaqGS: TSLA), Starbucks (NasdaqGS: SBUX) and, on multiple occasions, the federal government. HACK debuted in November, so it has been around for at least 10 of the cyber scrares mentioned by Goldman. [New Highs for Cyber Security ETF]
“Regardless of whether your company is making more money this year or losing money, you can still potentially be affected by a cyber-threat. You have to spend on cyber security regardless of the business cycle,” said PureFunds CEO Andrew Chanin in an interview with TheStreet.com.
“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.
HACK’s index “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.
There are newly minted leveraged equivalents of HACK; the Direxion Daily Cyber Security Bull 2X Shares (NYSEArca: HAKK) and the Direxion Daily Cyber Security Bear 2X Shares (NYSEArca: HAKD).
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]