To kick off this article, I’ll provide a brief overview of the global Cybersecurity market. From there, I’ll move into my HACK ETF review.
Nowadays, investors can access Thematic ETFs designed to invest in a range of companies that stand to take advantage of potential megatrends in technology, society, and the environment.
Thanks to Betashares, the Cybersecurity megatrend is no exception.
HACK ETF Review Contents
Before I get started, here’s a few cheeky contents links you can click through to navigate through this post.
- Cybersecurity Market Overview
- HACK Overview
- Why Invest In HACK
- Regional Exposure
- Weighting Methodology
- HACK Key Facts
- Jesse’s Verdict
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Cyber Security Market Overview
In a nutshell, cybersecurity is the exercise of shielding systems, networks, and programs from cyber attacks.
Over recent years the cybersecurity industry has become an attractive corner of the market for growth investors thanks to the rapid rise in the scale and sophistication of digital devices.
Statista is forecasting that there will be 38.6 billion IoT (internet of things) connected devices in use around the world in 2025, up from 22 Billion in 2018.
To put that in perspective, by 2025 there will be roughly 4.5 IoT connected devices for every person on earth.
A rise in IoT connectivity will result in increased demand for cyber security services
A steep rise in IoT connectivity translates to an increased risk of cyber-attack across the world. To secure our devices from the anticipated increase in cybercrime, Statista forecast that the global cybersecurity market will grow to $345.4 billion U.S. dollars by 2026 from $217.9 billion in 2021.
That’s a compounded annual growth rate (CAGR) of 9.67% over the next 5 years.
Cyber Attacks Are On The Rise. That’s Good News For Cyber Security Providers.
Concerns about the economic impact of cybercrime have continued to grow as society becomes increasingly reliant on technology and thus increasingly vulnerable to cybercrime.
For businesses, excessive cybercrime can translate to lost revenue due to customers losing trust following a cyber attack, remediation costs, litigation risks, and last but not least, a spike in costs related to improving their cyber security.
The Australian Government Is Responding to the Cyberthreat
Australia’s Cyber 2020 Cyber Security Action Plan revealed that the Federal Government will invest $1.67 billion over ten years in cyber security. This is the Government’s largest financial commitment to cyber security on record.
The plan outlines the necessary investment strategy, and associated actions governments, businesses, and communities need to take to elevate their cybersecurity capabilities.
In short, the cybersecurity industry seems like it has a lot of growth ahead of it as governments and companies scramble to protect themselves against the growing threat of cyber attacks. Now that I’ve given some context, let’s get stuck into the nitty-gritty of HACK.
Need to level up your ETF game?
Betashares HACK ETF Review (ASX:HACK)
Betashares HACK ETF aims to provide investors with access to the biggest and best companies populating the global cybersecurity segment of the technology sector.
To do so, HACK tracks the returns of the Nasdaq Consumer Technology Association Cyber Security Index.
For a company to be included in the index, it needs to be classified by the Consumer Technology Association (CTA) as a cybersecurity company.
Why Invest In HACK?
There’s no doubt the cybersecurity megatrend is here to stay for the medium term at the least, and therein lies the bull case for HACK.
From my perspective, HACK could be employed to provide investors with strategic exposure to the performance of the world’s biggest players playing in the growing cyber security space.
HACK tracks 39 companies that are creating and rolling out cyber security technologies for private and public networks so you don’t need to stock pick. You can simply garner the average returns of the industry by owning the lot!
HACK ETF Review: Performance
The growth of the Cyber Security industry is evident when you observe the performance of HACK.
Since its inception in 2016, HACK has returned a staggering 23.26% p.a (after fees, dividends reinvested). For context, a 23.26% return per year almost translates to a doubling of your capital every three years.
By comparison, VAS, which tracks the broad-based ASX 300 index has returned 10.08% p.a (after fees, dividends reinvested) over the same 5 year period.
On the other hand, all that past performance comes at a cost.
HACK ETF Review: Price
As you’d expect from a thematic ETF, HACK is not cheap.
With an MER of 0.67%*, HACK is around 17 times more expensive than the broad-based S&P 500 tracking ETF, IVV.
10,000 Invested in HACK would cost you
Betashares would charge $67 for every $10,000 invested in HACK. For comparison’s sake, $10,000 invested in IVV would cost you $4
*Fees excludes any bid/ask spread fees.
Is HACK Worth Its Hefty Price Tag?
HACKs past performance would certainly suggest it’s worth paying up for.
HACK also comes with the added benefit of strong industry tailwinds that could help to blow it in the right direction.
That said, past performance is not a reliable indicator of future returns. And as always, there are risks to consider before investing in an ETF.
What Are The Risks With HACK?
Some of the big ones for me include the concentration risk of owning companies that only operate in one industry.
There is also the short product lifecycle risk that comes with any rapidly changing technology. This risk is partially offset by owning a basket of stocks through an ETF like HACK rather than one or two individual stocks.
Betashares HACK PDS provides a more detailed list of the risks worth pondering over before investing in HACK.
HACK ETF Review: Regional Exposure
The US is home to the world’s largest, and most powerful tech companies. In fact, a large concentration of them including Google, Facebook and Apple all have their headquarters in the same state, California.
That’s why I wasn’t overly surprised to learn that 90.7%* of HACKs constituents are listed in the United States.
Isreal, A Leader In Cyber Security
What did surprise me is Israel’s influence in the cybersecurity industry. After some googling, I learned that the middle eastern nation of only 9 million people has proven itself to be a trailblazer in cybersecurity.
According to the Israel National Cyber Directorate, Israeli cybersecurity companies raised $3.4 billion spread across 50 deals in the first 6 months of 2021.
That’s more than the sum of all funds raised by Israeli cyber security start-ups in 2020. 7 of those companies became unicorns following their funding rounds, and over a third of worldwide cybersecurity unicorns are Israelis.
Rebellion Research partially attributes Israel’s expertise in the space to the evolving international terrorism threat coupled with the challenging environment Isreal faces in the Middle East.
A couple of the Israeli companies currently tracked by HACK are Check Point Software and Radware.
*As of 31/08/2021
HACK ETF Review: Company Weighting & Liqudity
Because HACK only tracks the returns of 39 companies, its underlying index adopts a modified liquidity weighting strategy. That approach ensures HACKs underlying holdings are sufficiently liquid and can’t take up outsized weightings in the ETF.
That means an individual company cannot exceed 6% of the HACKs total weighting, and only 5 companies are allowed to reach that cap when the Index is rebalanced quarterly.
From a liquidity perspective, companies must have a minimum three-month average daily dollar trading volume of $1 million and a minimum free float of 20% to be considered for inclusion in the index.
Check out HACKs PDS for more info.
HACK Key Facts 👇
Use the table below to grab all the key facts about HACK you need to get comfortable with it!
|As of August 31 2021||HACK|
|Management Fee (Incl operational costs)||0.67% P.A|
|Benchmark Index||Nasdaq Consumer Technology Association Cyber Security Index|
|Dividend Reinvestment Plan||Yes|
|12 Month Dividend Yield||2.8%|
|Income Distribution Frequency||Semi-Annual|
|3Yr Return p.a||22.02%*|
|Return Since Inception (2016) p.a||23.26%*|
|Funds Under Management (FUM)||$669m|
|Number of Holdings (ETF)||39|
|Weighting Methodology||Modified liquidity-weighted index|
|Weighting Caps||Individual companies are capped at 6% of the ETF.|
|Top 10 Holdings (highest to lowest concentration)||Zscaler INC, Crowdstrike Holdings INC, Accenture PLC, Okta INC, Cisco Systems INC/Delaware, Cloudflare INC, Varonis Systems INC, Fortinet INC, Cyberark Software LTD & Splunk INC.|
|Top 10 Holding Concentration||51.3% of the total ETF holdings|
*After fees, dividends re-invested.
Want to know more about HACK?
You can check out the latest HACKs fact sheet If you’re keen on doing some general reading.
Moreover, HACKs PDS will give you the next level of information about HACK if you’re after it!
Hack ETF Review: Jesse’s Verdict
Unfortunately, the Aussie stock market doesn’t boast a variety of companies specialising in Cybersecurity. That’s why HACK is an awesome alternative for investors looking for direct exposure to the world’s most prominent Cybersecurity Companies.
Although owning a HACK means you’re more diversified than you would be if you owned two or three cybersecurity companies, it still does come with a decent amount of concentration risk because its exposure is limited to one industry.
To sum up, if you’re insistent on owning HACK, I’m of the opinion that it should form a small part of a well-diversified portfolio.
Want More ETF Reviews?
If you’re interested in learning more about other ASX listed ETFs that’ll provide you with broader exposure to some of the worlds best-listed companies, check out my other reviews of the Best Australian ETFs.
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About The Writer
Hi, I’m Jesse, but you can call me Jes for short. My passion is simple, I’m on a mission to make the world of investing easily understood by removing the ‘too hard basket’ stigma that surrounds it.
Disclaimer: This website (the “The Money Pal”) is published and provided for informational and entertainment purposes only. The information in the Blog constitutes the Content Creator’s own opinions and it should not be regarded as financial advice.