First Trust and Nasdaq have teamed up to launch the First Trust Nasdaq CEA Cybersecurity ETF (CIBR), an ETF providing exposure to firms engaged in cybersecurity technology and innovation. The fund is linked to the Nasdaq CEA Cybersecurity Index, a composition of firms that are ‘primarily involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices in order to provide protection of the integrity of data and network operations.’
Ryan Issakainen, Senior Vice President and ETF Strategist at First Trust.
Firms will be eligible for inclusion if they are classified as a cybersecurity company, as determined by the Consumer Electronics Association (CEA), a standards and trade organization for the consumer electronics industry in the United States.
The index employs screening protocols to ensure adequate liquidity within the markets for its underlying stocks. The fund itself invests in a collection of stocks or American Depository Receipts to gain access to a global reach of companies specialising in cybersecurity.
The index provides exposures to a diverse mix of firms such as BAE systems, the British Multinational Company specializing in defence, security and aerospace; Cisco systems, the $138bn American technology firm; and Fireeye, the firm with a market-cap of over $7bn, specializing in providing malware protection, that has seen its share price increase by 45% since the start of the year.
“Along with the clear benefits of an increasingly interconnected world comes the growing need to ensure the security of cyberspace. This presents significant opportunities for companies involved with this task, many of which are not represented in traditional index ETFs,” said Ryan Issakainen, CFA, Senior Vice President and ETF Strategist at First Trust. “We believe this ETF provides a diversified, efficient way for investors to gain exposure to this important theme.”
Demand for cybersecurity has consistently remained high over the last three decades as companies and governments seek to protect themselves against attacks, some of which have historically caused their targets billions of dollars in damage. Cyberattacks can cause actual physical sabotage, as evidenced by the so called ‘logic-bomb’, inflicted by the US on Russian energy supply chains in 1982, where a single code prompted a Siberian gas pipeline to detonate, causing an explosion so large that the resulting fire could be seen from space.
Private-sector companies are also regular targets; in 2000 an attack on high-profile commercial websites, such as Amazon, CNN, eBay and Yahoo, brought their operational ability to a stand-still, causing an estimated $1.2bn in damage. The culprit was later discovered to be 15-year-old Canadian, Michael Calce, better known by his hacking alias: Mafiaboy. Other prominent attacks have included victims such as the US, Canadian and South Korean governments, and even the Church of Scientology.
Demand has remained so high that the average annual salary for a cybersecurity professional in the US in 2014 was over $93,000. The PureFunds ISE Cyber Security ETF (HACK), trading on the NYSE Arca since November 2014, was the first fund to exclusively track the performance of the cybersecurity sector. Due partly to the sustained high demand in the industry, the underlying firms have provided an impressive investment return: the return of the fund since inception is 18.7%, far surpassing the return of 0.4% earned by the S&P 500 over the same period.
“We are delighted to support another listing and product launch from First Trust,” said Jeff McCarthy, Vice President and Head of ETP Listings at Nasdaq. “We value our partnership with First Trust and their continued confidence in Nasdaq as a primary listing and trading facility for ETFs. Nasdaq continues to work across our organization to offer solutions to exchange-traded products across listing, trading, index and data.”