Thanks to accelerated digitalization globally and the introduction of breakthrough technologies, the tech sector is well-poised for considerable growth and expansion in the foreseeable future. Given the industry’s rosy prospects, it could be wise to invest in the best-performing First Trust NASDAQ Cybersecurity ETF (CIBR) for solid returns and portfolio diversification.
However, ARK Innovation ETF (ARKK) is best avoided now.
Before discussing the fundamentals of these ETFs, let’s discuss why the tech sector is thriving.
The technology industry remains well-positioned to witness continued growth and profitability, driven by its vital role in today’s world. Technology lends support in automating various tasks, communicating effectively, paying bills, shopping, entertainment, and enhancing the education and learning process.
When the COVID-19 pandemic broke out, much of the world moved online, speeding up digital transformation by several years. According to a report by Grand View Research, the global digital transformation market is expected to reach $4.62 trillion by 2030, growing at a CAGR of 26.7% during the forecast period (2023-2030).
Meanwhile, the U.S. digital transformation market is projected to grow at a CAGR of 23.1% from 2023 to 2030.
The digital transformation market’s growth can be attributed to the rapid adoption of advanced technologies, including cyber security, Artificial Intelligence (AI), Business Intelligence (BI), cloud, big data analytics, the Internet of Things (IoT), blockchain, Augmented Reality and Virtual Reality (AR&VR), and machine learning.
The pandemic forced businesses to opt for cloud-based platforms and services for remote working. Given the cloud’s enormous potential, approximately 94% of enterprises use cloud services as of 2023, while 67% of enterprise infrastructure is now cloud-based.
Further, businesses increasingly utilize AI, big data, and other cutting-edge technologies to collect real-time information, get valuable insights, enhance understanding of client needs, and drive overall efficiency.
With the rising number of cyber attacks due to the rapid increase in e-commerce platforms, the emergence of smart devices, and the growing cloud deployment, the cyber security market’s prospects look bright. Also, increased usage of devices equipped with IoT and other intelligent technologies will increase the cases of cyber threats.
The global cyber security market size is projected to reach $500.70 billion in 2030, expanding at a CAGR of 12.3% from 2023 to 2030.
While fundamentally weak tech ETF ARKK is best avoided now, CIBR could be an ideal investment now for potential gains.
ETF to Sell:
ARK Innovation ETF (ARKK)
ARKK is the flagship actively managed fund by ARK Invest, an advisory firm led by Catherine Wood. Companies within the fund rely on or benefit from developing new products or services, technological improvements, and advancements in scientific research relating to the areas of DNA technologies, automation, energy storage, AI, and fintech innovation.
With $6.02 billion in assets under management (AUM), ARKK’s top holdings are Tesla Inc. (TSLA), with a 9.14% weighting, followed by Coinbase Global, Inc. Class A (COIN) at 9.10%, and Zoom Video Communications, Inc. Class A (ZM) and Roku, Inc. Class A (ROKU) at 7.97% and 7.62%, respectively.
The fund has a total of 32 holdings, with its top 10 assets comprising 61.76% of its AUM.
ARKK’s expense ratio is 0.75%, higher than the category average of 0.49%. The fund flows came in at a negative $102.90 million over the past month and a negative $659.66 million over the past six months. Also, over the past year, ARKK’s fund flows stood at negative $740.58 million.
ARKK has plunged 10.4% over the past month and 8.3% over the past year to close the last trading session at $34.76. It has a beta of 1.64. The fund’s NAV was $34.76 as of October 27, 2023.
ARKK’s POWR Ratings reflect bleak prospects. The fund has an overall rating of D, translating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ARKK has an F grade for Trade and a D for Peer. Within the Technologies Equities ETFs group, it is ranked #77 of the 119 ETFs.
To access additional ARKK’s POWR Ratings (Buy & Hold), click here.
ETF to Buy:
First Trust NASDAQ Cybersecurity ETF (CIBR)
CIBR tracks the performance of companies engaged in the cybersecurity segment of the technology and industrial sectors. To be included in this fund, a security must be listed on an index-eligible global stock exchange and classified as a cybersecurity company as determined by the Consumer Technology Association (CTA).
CIBR tracks the Nasdaq CTA Cybersecurity Index. With $4.83 billion in AUM, the fund’s top holdings include Palo Alto Networks, Inc. (PANW) with a 6.45% weighting, followed by Infosys Limited Sponsored ADR (INFY) at 6.04%, and Fortinet, Inc. (FTNT) and Broadcom Inc. (AVGO) with 5.95% and 5.90% weightings, respectively.
The ETF currently has 34 holdings in total, with its top 15 assets comprising 62.95% of its AUM.
In addition, CIBR’s expense ratio is 0.60% compared to the category average of 0.55%. Over the past month, the fund flows came in at $744.2 thousand. It has a beta of 1.
CIBR has gained 10.3% over the past six months and 13.6% year-to-date to close the last trading session at $43.72. Also, it has climbed 7.3% over the past year. The ETF’s NAV was $43.72 as of October 27, 2023.
CIBR’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of B, which equates to a Buy in our proprietary rating system.
CIBR has an A grade for Trade and Peer. The fund has a B grade for Buy & Hold. It is ranked #10 of 119 ETFs in the same group.
Click here to access all the CIBR ratings.
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ARKK shares fell $34.76 (-100.00%) in premarket trading Friday. Year-to-date, ARKK has gained 14.19%, versus a 9.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
ARK Innovation (ARKK) and First Trust NASDAQ Cybersecurity (CIBR): Should You Invest in These Tech ETFs? StockNews.com
