Most ASX investors would turn their heads at a stock or exchange-traded fund (ETF) that returned close to 20% over more than nine years.
Investing in ASX shares has always generated inflation-beating, wealth-building returns for long-term investors. But those that invest in ASX index funds are used to an average return of something like 8.5% per annum over the past few decades. Those are get-rich-slow kinds of returns, not get-rich-quick.
But at 17.8% per annum, those lines begin to blur.
Yes, that's the return that the BetaShares Global Cybersecurity ETF (ASX: HACK) has generated for its investors since this ASX ETF's inception in August of 2016 (as of 28 November). Yep, HACK units have gone from the ~$5 per unit level they floated at back then to the $14.84 the fund commanded on 28 November. Adding in the divided distributions that HACK had paid out along the way, and we get to that magic 17.8% figure.
More recent years have been even more lucrative for owners of the Betashares Global Cybersecurity ETF. HACK units have returned an average of 22.84% per annum over the three years to 28 November.
As the name implies, this ASX ETF invests in a global portfolio of the leading companies in the cybersecurity space. Most of its holdings (about 79%) are US stocks, but countries like India, Israel, France and Canada are also represented. Some of its major holdings include Broadcom, Cisco Systems, Palo Alto Networks and Fortinet.
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The risks and rewards of this ASX ETF
Past performance is never a guarantee of future success. But let's talk about one reason investors might wish to buy this ETF, and one reason they might wish to avoid it.
First, the good. Cybersecurity is obviously a growth industry. Every year, more and more of our personal lives, business, government interactions and commerce move to the internet. This is a trend that is unlikely to abate anytime soon. Individuals, governments, and businesses are thus arguably going to be willing to spend more and more money on protecting their customers' and clients' personal information, not to mention their own reputations, from threats going forward.
We know how much a company's reputation can be damaged by a cybersecurity breach. Just ask Optus.
These trends should benefit the companies in the Betasahres Global Cybersecurity ETF immensely if so. And that bodes well for this ETF's continuing prosperity.
But what of the downsides? Well, this ETF represents one very narrow and concentrated corner of the global economy, with no real diversification.
If some kind of crisis or black swan event engulfs one or more of HACK's major holdings, it could result in a permanent loss of capital for investors. Unlike broad-market index funds, there are no companies from other corners of the economy to dilute this risk and provide the strength of diversification.
Of course, it's impossible to know what that risk might be. But we do know that only investing in one corner of the economy comes with inherent risk. That's why, if I bought this ETF, I would keep it as a small slice of a diversified stock portfolio.
