iShares Digital Security UCITS ETF (LOCK) $8.08

Assets: £1.2 billion

This year is being called a ‘global elections supercycle’ as hundreds of millions of voters go to the polls all over the world. That’s likely to see geopolitical risk remaining a hot button issue through 2024 and cybersecurity an increasingly crucial theme as the months trundle on.

We believe cybersecurity is an excellent 21st Century example of a ‘picks and shovels’ investing motif. We all use the internet and apps to run our daily home and work lives to an unprecedented degree and as ordinary people, corporates, and government agencies grapple with emerging threats to digital data and online safety, the iShares Digital Security ETF (LOCK) is a relatively low-cost way to put your money to work in this field.

The space includes companies that provide security basics, like firewalls, anti-virus defence and password protections, but fighting off hackers is the much larger threat. Where hackers were often tech-savvy individuals or small groups motivated more by ideology and putting one over on the establishment than money making, hackers today are far more sophisticated, organised and better funded, typically either state sponsored actors or criminal gangs looking to make vast profits.

Research by Citi analysts show that cybersecurity spending is already a top item in the tech spending budgets of leading US firms. Companies like Fortinet (FTNT:NASDAQ), Palo Alto Networks (PANW:NASDAQ) and CrowdStrike (CRWD:NASDAQ) are multi-billion dollar businesses that lead the industry.

In essence, the iShares Digital Security ETF offers investors exposure to some of the fastest-growing technology companies out there, such as Qualys (QLYS:NASDAQ), Zscaler (ZS:NASDAQ) and CyberArk Software (CYBR:NASDAQ), each among the portfolio’s top 10 stakes, plus those mentioned earlier. CrowdStrike is the largest stake worth 2.34% of assets.

As with any industry, there are always going to be winners and losers, but with a portfolio of 100-plus stocks, it means investors get the best of cybersecurity without having to jump through the research hoops needed to pick individual companies.

Since being set-up in September 2018, performance has been good, providing a total return of 71% over the past five years, or according to Morningstar data, an annualised 11.4% a year. The ETF is up 21% over the past year. 

There are alternatives in this space, with the L&G Cyber Security ETF (ISPY) pitched by Shares in the past. It is also a fine play on cybersecurity, although it is more concentrated (with around 40 stocks) and more expensive, with ongoing charges of 0.69% versus iShares Digital Security’s 0.4%.

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