The world of Exchange Traded Funds is massive and growing every day. Whether it’s a simple index fund to a specialty fund that focuses on a very niche industry, you can most likely find an ETF that is right for you. I often tout the S&P 500 index funds for their low cost and how easy they are for a non-financial savvy investor to get into the market and start investing.
But, for those who have a solid understanding of the markets, the risks, and enjoy finding new investments, I love highlighting the niche ETF's I find. One of my favorite specialty ETF's is the PureFunds ISE Cyber Security ETF (HACK). HACK tracks an equal-weighted index of companies that are actively involved in the cyber security industry.
With the recent global hack that locked users out of their computers and demanded a ransom be paid, the HACK ETF received little attention, while the companies it owns received a lot. That attack once again highlighted the importance of cyber-security and how cyber-attacks are here to stay and will only likely become more prevalent with time.
Due to these new realities, the companies helping protect our online information should only continue to see revenue and profits increase in the future. But, while it's almost certain the cyber-security industry is going to grow in the future, it is still too difficult to pick the winners, which is why investing in an industry-wide ETF makes the most sense at this time.
HACK currently owns 39 companies, with its top ten holdings making up 41% of the fund. Some of those holding include Symantec Corporation, Qualys, FireEye, Juniper Networks, Imperva, and Splunk. (Unless you work in the industry, I would be surprised if you have heard of more than one or two of those companies.)
But, the problem with HACK is that its value pops after a big cyber-security attack and then often falls a few days or weeks following the news of a big attack. In the past, I offered the idea of trying to time these pops by buying during a no news period and then selling immediately after a massive cyber-security attack takes place. I still believe this strategy is one that would work for some HACK investors who follow the markets closely, but I’m starting to believe the best way to invest in HACK is to simply buy and hold, preferably forever.
If you look at a chart of PureFunds ISE Cyber Security ETF (HACK) over the past year, it peaks and falls with the announcements of attacks, but it simply and slowly continues to rise. A year ago the ETF traded at $24.5, today it is over $31 per share. Someone buying and selling could certainly have made money, but after calculating trading fees and taxes, all the headache may not have been worth the gain. But, simply buying HACK a year ago and still owning it today, an investor could have made a nice 26% return.
Furthermore, since it appears that cyber-attacks are happening more frequently, the period in which traders can profitably buy and sell the ETF for profit is becoming more and more difficult to time.
It has been nearly three weeks since the cyber-attack swept around the globe, meaning most of the ETF's pop and drop from that attack has occurred, leaving you an open window to start building a position in an ETF that you can own for years to come, knowing you are investing in a growing industry.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor held long positions in Apple, Tesla, Intel, Google, Amazon.com, Facebook, Priceline and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
