It was pretty clear that “HACK,” the cybersecurity ETF that launched last November, was going to win ETF Ticker of the Year at our recent ETF.com Awards. It did, to no one’s surprise.
But what was surprising to me was discovering the variety of ways advisors are using the PureFunds ISE Cyber Security ETF (HACK). I thought for sure this fund was a siren call to alpha seekers on steroids. And maybe it is.
But plenty of asset allocators with fiduciary responsibilities to their clients in mind are among those who have helped lift HACK’s assets to almost $500 million.
To set the stage a bit, HACK came to market around Thanksgiving last year—precisely the time that crazy hacking story about Sony Pictures, North Korea and the movie “The Interview” was dominating headlines.
“When you take a look at the headlines that were going around at that time with the problems at Sony Pictures, and the cybersecurity breaches at major operations around the country from Home Depot to Target and now Anthem, you could really see that this is a business that has great growth potential,” Doug Fabian, head of Costa Mesa, California-based Fabian Wealth Strategies, told me.
Fabian was one of the few advisors who was willing to speak on the record about how his firm uses HACK, but many others had compliance concerns and only did so off the record. All of these advisors, whatever their broader approaches to technology, said none of the tech ETFs now available on the market has sufficient exposure to cybersecurity companies.
Fabian uses two niche tech funds from First Trust along with HACK; some advisors use broad plain-vanilla tech ETFs such as the Technology Select Sector SPDR Fund (XLK | A-88) with HACK; and advisor one even combined HACK with an equal-weighted tech fund, giving his clients access to tech that minimizes exposure to huge companies in the space.
Compelling Investment Thesis
Before getting under HACK’s hood, and before more closely examining these ways advisors are using HACK as bona fide fiduciaries, look at the chart below. Whatever nervousness we all feel about hacking these days seems to be good news for investors.
The chart shows HACK’s returns since its launch on Nov. 12 last year relative to the SPDR S&P 500 ETF (SPY | A-98) and XLK, the fund I mentioned above. XLK serves here as a proxy for “pure beta” tech exposure. SPY is in red; XLK is in blue; and HACK is in black.