Higher Risk & Higher Returns
The first thing that jumps out is that HACK is a relatively high-beta fund.
It rises more sharply than funds canvassing bigger slices of the market, and it certainly falls more abruptly in market pullbacks. This is because the fund is full of smaller and newer companies plying the cybersecurity space.
That definitely makes HACK a higher-risk play. But with higher risks come higher potential returns—in fact, about four times as much as either SPY or XLK since HACK’s inception. Past results don’t guarantee future returns, but there’s little doubt that cybersecurity has become and will remain a very important part of the tech world and the global economy.
Again, the advisors with whom I spoke—whether at wire houses, regional broker/dealers or at independent registered investment advisors, like Doug Fabian—are clear that other tech ETFs simply don’t have enough cybersecurity.
Asset Allocation, The New Asset Class
Some advisors are using HACK in conjunction with very broad pure-beta-style tech funds like XLK or the iShares U.S. Technology ETF (IYW | A-96).
But others, looking to minimize exposure to some of the tech sector’s behemoths like Apple, are mixing HACK with an equal-weighted fund like the Guggenheim S&P Equal Weight Technology ETF (RYT | A-74). This approach, as I noted above, tilts to relatively smaller firms that deliver slightly higher—and more volatile—expected returns over time than the broader market.
Doug Fabian favored combining HACK with the First Trust Dow Jones Internet Fund (FDN | B-59), a $2.5 billion fund that bets on “big data,” and the income-inflected First Trust Nasdaq Technology Dividend Fund (TDIV | A-69), an ETF that focuses on the dividend growth that’s now manifesting in the tech sector.
As you can see in the chart below, HACK—in fuchsia—has, since its inception, readily outperformed all the tech ETFs I’ve mentioned in this blog, including XLK (depicted in the chart above) as well as IYW, FDN, TDIV and RYT.
Charts courtesy of StockCharts.com
To be clear, this pretty picture doesn’t diminish my buy-hold-and-rebalance sensibilities. But I do recognize that my inner gambler might be well-served with a modest wager on a fund like HACK that has a lot more going for it than a cool ticker.
At the time this article was written, the author held no positions in the securities mentioned. Contact Olly Ludwig at [email protected] or follow him on Twitter @OllyLudwig.