Although cyber security headlines were probably not top of mind for all given 2020’s news cycle, this did not slow down bad actors who use cyber security, or lack thereof, to effect and infect the world around them. Highly visible Twitter accounts were targeted to push a Bitcoin agenda, Marriott was hacked (again), and Zoom “bombing” became a household term. These attacks, however, were far less news-shattering than the Solarwinds hack that came at the tail end of a tumultuous year.
Solarwinds2 is a third party software that allows companies to manage their technology infrastructure. Using a “trojan horse” strategy, a known Russian group of hackers was able to implement malware into a section of a Solarwinds system update. This malware allowed the bad actors access to sensitive information on an infected system, user data, company secrets, and adjusting/manipulation of data on the system. What’s worse is that this hack began back in March when the world was focused on a fast-spreading pandemic, but no official comment of software compromise came out until mid-December giving the bad actors 8 months of unfettered access to infected systems. The systems affected include Fortune 500 companies and several government departments such as the Department of Treasury and Homeland Security.
All of this to say, when a major attack like Solarwinds, or even a smaller event that doesn’t affect the government of the largest superpower in the world, decision makers and the general public focus on and spend more on cyber security. Did I mention the cost estimate of nearly $100B and months of scrubbing code in order to reverse the effects of the Solarwinds hack? As society continues to move more aspects of life and business online, cyber security will continue to see more spending on protecting personal data. If not, businesses may run into legal issues with nation states implementing heavy fines for lackluster protection – just look at the EU’s data protection law implemented in 2018.
HACK’s Performance (as of 12/31/20)
Fund Inception1: 11/11/2014 Expense Ratio: 0.60%
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477). Performance
is annualized for periods greater than 1 year.
IN THE NEWS
- Wired: Europe’s New Privacy Law Will Change the Web, and More
- Business Insider: Solarwinds Hack Explained
- Wired: The Worst Hacks of 2020
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477), or by visiting www.etfmg.com/HACK. Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. The fund is concentrated in technology-related companies that face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Such companies may have limited product lines, markets, financial resources or personnel. The products of such companies may face obsolescence due to rapid technological developments, frequent new product introduction, unpredictable changes in growth rates, competition for the services of qualified personnel, and competition from foreign competitors with lower production costs. Technology companies are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Funds are non-diversified, meaning they may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Diversification does not assure a profit or protect against a loss in a declining market. The Fund’s return may not match or achieve a high degree of correlation with the return of the Prime Cyber Defense Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Prime Cyber Defense Index.
ETF Managers Group LLC is the investment adviser to the Fund.
The Fund is distributed by ETFMG Financial LLC. ETF Managers Group LLC and ETFMG Financial LLC are wholly owned subsidiaries of Exchange Traded Managers Group LLC (collectively, “ETFMG”). ETFMG is not affiliated with Prime Indexes. Bryan Masucci is a registered representative of ETFMG Financial LLC.
- 1. The Fund’s benchmark before 8/1/17 was the ISE Cyber Security Index. On 8/1/17, the Fund’s benchmark became the Prime Cyber Defense Index.
- 2. Individual securities mentioned in this commentary may or may not be current holdings in any of the funds sponsored, advised or distributed by ETFMG and its affiliates. Holdings are subject to change with or without notice.