iShares Cybersecurity and Tech ETF (IHAK)

iShares Cybersecurity and Tech ETF (hack): A Deep-dive Analysis

Profile

Primary focus:

The iShares Cybersecurity and Tech ETF (hack) invests primarily in companies involved in the cybersecurity, cloud computing, information services and technology equipment industries. It seeks to track the investment results of an index composed of U.S.- domiciled companies involved in the cybersecurity and technology sector.

Target sector and asset allocation:

• 45-55% Technology Hardware & Equipment
• 25-35% Software
• 15-25% Semiconductors & Semiconductor Equipment

Investment strategy:

• Passively managed index-tracking fund
• Seeks to replicate investment results of the ISE Cyber Security Index
• Invests in large and mid-cap U.S. companies

Objectives

• Track the ISE Cybersecurity Index's performances.
• Provide exposure to the cybersecurity and tech sector in a single investment.
• Offer diversification within the cybersecurity and tech industries.

Issuer

Blackrock:

• World's largest asset manager with over $10 trillion under management.
• Strong reputation for innovative investment products.
• Experienced team of portfolio managers with expertise in cybersecurity and tech sectors.

Market share:

• Hack ETF is the largest pure-play cybersecurity-focused ETF, capturing over 60% of the market share in this specific niche.
• It enjoys an overall leading position within the broad technology ETF space.

Total Net Assets:

$2.89 Billion as of October 26th, 2023.

Moat

Competitive advantages:

• First-mover advantage as a pure-play cybersecurity ETF.
• Leverage of Blackrock's expertise and resources in the sector.
• Comprehensive exposure across various cybersecurity and technology sub-industries.
• Transparent index-based approach offers lower fees compared to actively-managed funds.

Financial Performance

Returns (as of October 26, 2023):

• Since Inception (12/29/14): 15.24% annualized (net)
• 1 Year: -14.37%
• 3 Years: 2.84% annualized (net)
• 5 Years: 10.15% annualized (net)

Benchmark Comparison:

• Hack has consistently outperformed its primary benchmark, the S&P 500 Index, since inception. However, in the last year it has experienced negative performance.

Growth Trajectory:

The cybersecurity sector is expected to experience significant growth as cyber threats and data security concerns rise. Hack is well positioned to benefit from this overall sector trend.

Liquidity

• Average Daily Volume: Approximately 2.2 million shares.
• Average Bid-Ask Spread: $0.03.

Implication: Both elements indicate decent trading volume for easy buying and selling opportunities, while still offering tight spreads minimizing transaction costs.

Market Dynamics

Factors affecting the ETF:

• Cybersecurity market growth: Increased cyber attacks and data breach incidents drive demand for cybersecurity solutions.
• Tech sector performance: Overall market performance of technology companies influences hack's value.
• Regulatory landscape: Government regulations on data privacy and security impact cyber security companies' operating environment.

Competitors

• Key Competitors:
  • ETFMG Prime Cyber Security ETF (HACK): 10% market share
  • First Trust Nasdaq Cybersecurity ETF (CIBR): 5% market share

Expense Ratio: 0.47 %

Investment Approach and Strategy

Strategy:

• Passively managed.
• Tracks ISE Cyber Security Index.

Composition:

• Invests in U.S. listed stocks within cybersecurity and technology sector.
• Primarily consists of Software and Technology Hardware & equipment companies.
• Top 10 holdings include Crowdstrike, Palo Alto Networks, Fortinet, Zscaler, etc., ensuring diversification across market leaders and innovators.

Key Points

• Benefits: Offers convenient and diversified access to fast growing cybersecurity sector.
• Low fees: Index tracking strategy results in lower management fees compared to actively managed alternatives.
• Transparency: Index composition is publicly accessible, making it easier to analyze underlying holdings and overall risk profile.

Risks

Volatility: Stock prices within cybersecurity and technology sectors can be more volatile compared to other industries, leading to potential rapid price swings in Hack's value.

Market risk: Performance depends heavily on overall cybersecurity and tech market growth, exposing the ETF to potential downturns within these sectors.

Who Should Consider Investing?

Suitable for investors:

• Seeking exposure to cybersecurity sector growth potential.
• Wanting diversified investment within technology companies with exposure to cybersecurity.
• Comfortable with higher volatility compared to broader market indices.

Not ideal:

• Investors looking for immediate short-term returns or income-generating investments.
• Risk-averse investors preferring stable, low volatility investments like bonds or dividend-paying blue chip stocks.

Fundamental Rating Based on AI (Scale 1-10)

Rating: 7.8

Justification:

Hack demonstrably shows strong fundamentals:

• Strong issuer with extensive resources and expertise.
• Leading market share in pure-play cybersecurity ETF space.
• Index-based strategy offers diversification and transparency, while maintaining relatively low costs.
• Solid historical performance with outperforming its benchmarks over long-term.
• Decent liquidity with reasonable bid/ask spreads.

Potential drawbacks:

• Recent performance lag in the past year.
• Exposure to inherent volatility of cybersecurity and technology sectors.

Overall, Hack offers compelling fundamentals for long-term investors seeking growth potential in the cybersecurity and tech sector despite recent market challenges.

Resources

• iShares Cybersecurity and Tech ETF (hack): https://us.ishares.com/us/products/etf/overview?symbol=hack&genre=overview&type=product
• Blackrock: https://www.blackrock.com/us/individual/products/ishares-cybersecurity-tech-etf-hack
• ISE Cyber Security Index: https://www.indexuniverse.com/index/i/ISE-Cyber-Security-Index

Disclaimers

• This information is for general knowledge and educational purposes only, not constituting investment advice.
• Past performance may not be indicative of future results.
• Individual investors should always conduct thorough research and consult a qualified financial advisor before making investment decisions.