Investing in Cybersecurity ETFs

As the world becomes ever more reliant on the internet and software systems, the need for cybersecurity to protect that infrastructure increases. For those interested in investing in the fast-growing industry, the Vanguard Information Technology ETF (NYSEMKT: VGT), PureFunds ISE Cyber Security ETF (NYSEMKT: HACK), or First Trust Nasdaq Cybersecurity ETF (NASDAQ: CIBR) could be the ticket.

Apples to apples to oranges: Anti-hacker index funds

PureFunds' HACK and First Trust's CIBR cybersecurity ETFs are relative newcomers in the investment world, both having launched within the last few years. Due in large part to the frequency and high-profile hacking incidents in recent years, both funds have attracted significant investment in their short history. However, they still lag behind the much-older Vanguard technology ETF in both size and total cost.

Technology stocks are having a great 2017, as indicated by Vanguard's technology ETF. Cybersecurity companies have done well also, but the industry is still evolving and has had a few downturns this year, so it has underperformed the broader sector.

Since the beginning of the year, PureFunds ISE Cyber Security ETF has outperformed First Trust Nasdaq Cybersecurity ETF. It is worth noting, though, that performance dating back to the earliest possible comparison (or 2015, when First Trust's offering, CIBR, launched) favors CIBR by a significant margin.

What's causing the difference? There are a number of factors. For instance, HACK's portfolio includes smaller companies, and CIBR typically exhibits less volatility (in other words, the fund is down less on bad days than HACK is). At the end of the day, though, there is not much history behind either ETF, and with cybersecurity still a young industry, chances are good that the performance of the two funds will be similar over time.

The best way to play

The underlying stock portfolios of each cybersecurity fund are similar in many ways, but there are important differences. More specifically, CIBR favors bigger companies, and more of the fund's assets are concentrated in those top companies. To illustrate, here are the top five holdings of each, as of this writing:

If you're looking for a little extra growth potential from the industry, HACK might be the place to start with its inclusion of smaller companies in the top of the list. CIBR will also benefit from growth in cybersecurity, but the favoring of big companies could help lower the ups and downs.

The other option -- for investors who prefer a hands-off approach and don't appreciate the extra excitement -- is to buy the whole U.S. tech sector with the Vanguard fund and call it good.

10 stocks we like better than Vanguard Information Technology ETFWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Vanguard Information Technology ETF wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 5, 2017

Nicholas Rossolillo has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Palo Alto Networks. The Motley Fool has a disclosure policy.