The Betashares Global Cybersecurity ETF (ASX: HACK) is one of the most appealing exchange-traded funds (ETFs), in my opinion. Two key reasons why I think it has a promising future are growth potential and earnings resilience.
I'll tell you a little about the ETF before getting to my bullish reasons for liking it.
The HACK ETF provides investors exposure to a global portfolio of companies that provide cybersecurity services. We're talking about both global powerhouses as well as emerging players. There are a total of 30 businesses in the portfolio, including Broadcom, Cisco Systems, Palo Alto Networks, Crowdstrike, Infosys, Darktrace, Thales, Leidos, Trend Micro and Qualys.
It has an annual management fee of 0.67% — this is more expensive than some well-known ETFs like iShares S&P 500 ETF (ASX: IVV), but it's cheaper than what many active fund managers may charge.
Now, let's get into two reasons why I'm optimistic about its future.
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Necessary growth
More people worldwide are using the Internet for shopping, banking, connecting with government services, communication, entertainment, and so on. Highlighting the importance of the HACK ETF, it's vital that all of these services have strong cybersecurity to stop cyber criminals from trying to do mischief.
It's a sad trend that cybercrime is growing globally. Australia is a great example of how the cost of cybercrime is rising, highlighting the need for households, businesses and governments to invest even more in cyber defence.
The Australian Cyber Security Centre (ACSC) is the Australian Government's technical authority on cybersecurity. The annual cyber threat report 2022–23 saw nearly 94,000 cybercrime reports, up 23%, and it answered 33,000 calls to the Australian cyber security hotline, up 32%.
The average cost of cybercrime per report increased by 14%, reaching $46,000 for small businesses.
The top three cybercrime types for individuals were identity fraud, online banking fraud and online shopping fraud. The top three cybercrime types for businesses were email fraud, business email comprise (BEC) fraud and online banking fraud.
Worryingly, according to the cybercrime report, publicly reported common vulnerabilities and exposures (CVEs) increased 20%.
Defensive earnings
One of the most important elements of the HACK ETF to consider is that the underlying companies could have very resilient earnings.
Some sectors, such as resources and retail, can see significant profitability variability. In theory, I don't think that's the case for the cybersecurity sector as a whole. Businesses and governments need to maintain their cybersecurity defences whether the economy is booming or not. I think this means the companies in this portfolio can provide solid earnings, even if the economy is going through a downturn.
In my opinion, the HACK ETF could provide a cushion against market declines, meaning it could potentially decline less than the market (though any company's share price can drop) due to the relative stability of revenue of the underlying businesses.
The combination of growth and defensive earnings is attractive and could lead to outperformance, though that's not certain.
