Weakness in ETFMG Prime Cyber Security ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy gets a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in quality exposure and an overweight in liquidity exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. The team managing this passive strategy earns a Low People Pillar rating. To be considered a quality steward, this strategy's parent organization needs to improve factors like a lack of inside investments from portfolio managers and a relatively inexperienced portfolio management team. As a result, the firm obtains a Low Parent Pillar rating.

Analyst Rating

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Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. ETFMG Prime Cyber Security ETF earns a Low Process Pillar rating. The most substantial detractor from the rating is the fund's weak long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. The parent firm's five-year risk-adjusted success ratio of 14% also holds the rating back. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup. 

The investment strategy as stated in the fund's prospectus is:  The investment seeks investment results that, before fees and expenses, and correspond generally to the total return performance of the Prime Cyber Defense Index.  The index tracks the performance of the exchange-listed equity securities of companies across the globe that (i) engage in providing cyber defense applications or services as a vital component of its overall business or (ii) provide hardware or software for cyber defense activities as a vital component of its overall business. The fund invests at least 80% of its total assets in the component securities of the index and in ADRs and GDRs based on the component securities in the index. 

 The portfolio is overweight in technology and industrials relative to the category average by 9.9 and 7.9 percentage points, respectively. The sectors with low exposure compared to category peers are communication services and consumer cyclical, underweight the average by 8.6 and 4.8 percentage points of assets, respectively. The strategy owns 52 securities and is about as top-heavy as the category average, with 48.1% of assets in the top 10 holdings.

Process

ETF Managers’s team receives a Low People Pillar rating. The number one detractor from the rating is the turnover of talent across its parent firm. The firm's asset-weighted manager tenure of six years suggests it could do more to retain portfolio managers. The managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns, also detracts from the team. The turnover of its management team limits the rating further. Specifically, the fund last had a manager change one year ago.

People

ETF Managers lags peer asset managers in a number of stewardship qualities, resulting in a Low Parent Pillar rating. A quality holding back ETF Managers from the top tier of stewards is its managers' limited personal investments in their respective products, which helps to align portfolio manager and shareholder interests. Currently, none of the firm’s assets are covered by invested managers. With an average asset-weighted tenure of six years among the longest-tenured managers at ETF Managers, the firm is on par with peers. Seasoned teams tend to have more experience to draw upon should they need to weather turbulent market conditions. The firm charges fees on its open-end and exchange-traded funds that are on par with category peers. On average, fund fees on its products fall in the middle quintile, giving it neither an advantage nor disadvantage compared with the competition.

Parent

ETFMG Prime Cyber Security ETF

HACK tracks a tiered, equal-weighted index that targets companies actively involved in providing cybersecurity technology and services.

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The cyber attack on the Colonial Pipeline is re-emphasizing the need for greater cybersecurity, which should prop up assets like the Global X Cybersecurity ETF (BUG). “The ransomware attack on Colonial Pipeline on May 7, 2021, exemplifies the huge challenges the U.S. faces in shoring up its cyber defenses,” a Sci Tech Daily article explained.

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Shares of cyber security software stocks were mostly lower Monday, as the overall weakness in the technology sector outweighed security concerns following the ransomware attack on the Colonial Pipeline Co. that forced the shut down of pipelines that supply the East Coast with much of its refined fuel. The ETFMG Prime Cyber Security ETF fell 0.7% in morning trading, with 38 of its 58 equity components trading lower.

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Let's check out the fourth-quarter results of some of the cyber security firms that have the largest allocation to the ETFs in this niche area of the technology sector.

News for ETFMG Prime Cyber Security ETF ETF (HACK)