FTSE 100 exchange-traded funds (ETFs) are an extremely popular investment choice among UK investors.
However, if you’re looking for higher returns on your money, I think it’s worth having some exposure to a selection of more-growth oriented ETFs. The reason I say this is because the FTSE 100 lacks significant exposure to the fast-growing technology sector, which means that going forward, returns could be muted relative to other indexes. The Footsie is a great index in many ways, yet I’m not convinced it’s a ‘one-stop shop’ for investors.
With that in mind, today I want to highlight a ‘thematic’ ETF that I believe has substantial growth potential over the next decade. I think the returns from this one could smash the returns from the FTSE 100 over the next 10 years.
Cybersecurity: a huge growth market
One of the biggest threats facing society today is cybercrime. Described as the “number one problem with mankind” by Warren Buffett and as “the greatest threat to every profession, every industry, and every company in the world” by IBM CEO Ginni Rometty, it’s a significant problem for governments, businesses and individuals alike.
The more I read about cybercrime, the more it worries me – the statistics are simply mind-blowing. For example, according to industry experts, by 2021, the total cost of cybercrime could reach a staggering $6trn annually, making it more profitable than the global trade of all illegal drugs combined. Think about that for a second.
Cybersecurity ETF
One way to profit from this problem is to invest in companies that specialise in cybersecurity solutions (around $125bn is set to be spent on cybersecurity this year) and an excellent way to do this, in my view, is through the Legal & General Cyber Security UCITS ETF.
Available on the Hargreaves Lansdown platform under ticker ISPY, this ETF tracks an index of leading cybersecurity companies (the ISE Cyber Security Index), providing investors with diversified exposure to the sector. Top holdings include the likes of Swedish firm Fingerprint Cards, which specialises in biometric technology, Cyberark Software, which focuses on protecting ‘privileged’ account access, and Palo Alto Networks, which is one of the largest cybersecurity firms in the world with a market cap of $21bn.
Strong performance
The performance of this ETF over the last three years has been excellent, with the annualised return for the three-year period to 1 February coming in at a high 25% per year. That’s significantly higher than the FTSE 100’s return of around 9% per year over the same time period. Of course, there’s no guarantee that the ETF will perform like this in the future. However, with exposure to 43 of the world’s leading cybersecurity companies, I believe it has a good chance of generating strong long-term returns, given that cybercrime is a problem that is getting worse every year.
Fees on this ETF are higher than fees on your typical FTSE 100 ETF at 0.75% per year, however, I think that’s a fair price to pay to obtain exposure to this fast-growing sector. Overall, I believe the Legal & General Cyber Security UCITS ETF has excellent growth prospects over the long term.