On May 7th, the city of Baltimore realized it was the target of a ransomware attack in which critical files were encrypted remotely and held hostage for ransom. The city notified the FBI and took many systems offline to keep the attack from spreading. The attack took down voice mail, email,
a parking fines database, and systems to pay water bills, property taxes and vehicle citations. The Baltimore city budget office estimated the cost of responding to the attack at $18 million.
We continue to see a significant increase in the need
for cybersecurity, as evidenced in the chart from the US Department of Justice. The increase in monetary damage from cybercrime, now approaching $3 Trillion annually, increased more than 90% in 2018 from the prior year.
HACK returned -0.32% for the quarter ended June 30, 2019, which was in line with its benchmark and ahead of the overall Information Technology Industry.
At the sector level, Industrials (despite its 3% weight in the index) was the largest contributor to performance, returning 5.2% for the quarter. Information Technology had a -0.04% impact on HACK’s return.
At the security level, HACK’s performance was helped by UK-based virus protection company Sophos Group (SOPH LN, +28.2%), as well as US technology consultant Science Applications International (SAIC, +13.1%). HACK’s holdings that had negative returns included Sailpoint Technologies (SAIL, -30.2%), Commvault Systems (CVLT, -23.4%), and Palo Alto Networks (PANW, -16.1%).
Looking at fundamental factor performance, the portfolio’s allocation to global software was the largest positive contributor to return, followed by exposure to the global markets and US equities. Detractors were led by style factors Trade Activity, Profitability, and Size.
Taking a closer look at the components of the Style factor, we see the magnitude of the contribution made by each individual factor. The largest positive contributor in Q2 was Growth, followed by Momentum, then Leverage. Trade Activity was the largest detractor of the style factors, followed by Profitability and Size (consistent with what we see above).
Fund Performance (as of 6/30/19)
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.
The Prime Cyber Defense Index (PCYBER) provides a benchmark for investors interested in tracking companies actively involved in providing cyber security technology and services. The Index uses a market capitalization weighted allocation across the infrastructure provider and service provider categorizations as well as an equal weighted allocation methodology for all components within each sector allocation. Index components are reviewed semi-annually for eligibility, and the weights are reset accordingly. An investment cannot be made directly in an index. Fund holdings and sector allocations are subject to change at any time and should not be considered recommendations to buy or sell any security.
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 Financial LLC is not affiliated with Prime Indexes.