First Trust Launches New Cyber Security ETF

On Tuesday, First Trust Portfolios LP announced the debut of a new exchange-traded fund designed to capitalize on the red-hot cyber security industry. 

The First Trust Nasdaq CEA Cybersecurity ETF (CIBR) is designed to track an index of companies engaged in building, implementing, and managing security protocols for networks and online devices.  This will include well-known names such as Fireeye Inc (FEYE) and Lifelock Inc (LOCK) in its diversified portfolio. 

The index that CIBR is based on will track approximately 34 publicly traded technology stocks that are required to have a minimum market capitalization of at least $250 million.  In addition, separate liquidity and free float screens are incorporated to ensure that each stock has adequate trading volume.

According to the index description, CIBR will employ a modified liquidity weighted methodology to drive the final weighting within the overall portfolio. 

Ryan Issakainen, CFA, Senior Vice President and ETF Strategist at First Trust, noted that "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.”

CIBR will compete head to head with the extremely successful PureFunds ISE Cyber Security ETF (HACK), which has nearly $1.2 billion in total assets.  HACK tracks a similar index of 32 global companies and has been one of the top performing areas of the technology space so far this year.

In the first half of 2015, HACK gained 19.10 percent versus a modest 0.98 percent increase in the sector benchmark Technology Select Sector SPDR (XLK).

 CIBR will certainly have its work cut out for it to muscle its way in to a concentrated industry group with an established index that has benefitted from the first mover advantage.  Nevertheless, First Trust has had success launching other niche technology funds such as the First Trust ISE Cloud Computing Index Fund (SKYY), which has more than $460 million under management.