Benefits and risks of investing in cybersecurity ETFs
Like most investments, there are pros and cons of buying cybersecurity ETFs in your portfolio. Here are a few of the benefits and potential drawbacks:
Benefits:
- Broad exposure to cybersecurity without too much exposure to any individual stock.
- Takes the need to research stocks out of the equation.
- You'll make money if the cybersecurity industry does well, regardless of the top performers.
Drawbacks/risks:
- Cybersecurity ETFs tend to have fees on the higher end for ETFs.
- Lower upside potential than investing directly in the top cybersecurity companies.
- Cybersecurity can be a volatile industry, especially if there's a major breach or fear of disruption.
Methodology: How these ETFs were chosen
First off, I intentionally crafted a list that included a combination of pure-play cybersecurity ETFs and a broader technology ETF. All have significant cybersecurity exposure, but track different indexes, have different fees, and are appropriate for different investment goals.
For each ETF on a longer list, I pulled the current data directly from the fund issuer's own website, and compared investment concentration, top holdings, expense ratios, and several other factors. I then chose the best overall choices among pure-play cybersecurity ETFs, including some that are highly popular and a few up-and-comers, as well as an excellent information technology ETF that has significant exposure to cybersecurity with a rock-bottom expense ratio.
The bottom line
With computing technology infiltrating every corner of the global economy, cybersecurity is poised to be one of the most important secular growth trends of the next decade and beyond.
Individual stocks that develop security technology services will be volatile, but investing in a basket of them could yield big returns over the long term. An ETF is a quick and easy way to gain investment portfolio exposure to this critical segment of the tech sector.