Working from home isn’t going away. Here’s how to invest in it with ETFs

Woman working from home with her daughter singing and playing by her side.


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As businesses and local economies snapped shut in mid-March and millions of Americans turned their living rooms into offices, it was only a matter of time before someone launched an exchange-traded fund to capture the “Work From Home” investment thesis.

In late June, the Direxion Work From Home ETF
WFH,
+0.93%
,
sporting the buzzy ticker WFH, started trading. As MarketWatch noted at the time, the fund offers a surprisingly broad reach, including not just the stock-market darlings of the pandemic, but lesser-known and geographically diverse offerings as well. 

Still, as a recent analysis points out, there are as many options for playing the work-from-home investment thesis as there are ways to set up a home office. 

That analysis, published by CFRA’s head of ETF and mutual fund research, Todd Rosenbluth, reckons that over $4.5 billion of investor dollars have flowed into some of the biggest funds with themes most likely to benefit from the new office normal. Importantly, Rosenbluth notes, there are two big subcategories where investors can look for opportunity: funds with a cloud computing focus, and those that invest in cybersecurity. 

Cloud computing ETFs are picking up much more money—about $3.1 billion this year, through early August—and, to a certain extent, outperforming cybersecurity ETFs, according to CFRA’s First Bridge Database findings. 

Select Cloud Computing ETFs

YTD Return

YTD Flows, billions

Assets, billions

First Trust Cloud Computing
SKYY,
+0.84%
26%

$1.5

$4.6

Global X Cloud Computing
CLOU,
+1.63%
38%

$0.4

$1

Pacer Benchmark Data & Infrastructure Real Estate
SRVR,
+1.17%
14%

$0.6

$0.9

WisdomTree Cloud Computing
WCLD,
+2.02%
53%

$0.6

$0.6

Source: CFRA’s First Bridge Database, as of August 10

There are two possible reasons for that. One is that one of the biggest cybersecurity ETFs, the ETFMG Prime Cyber Security fund
HACK,
-0.08%
,
faces some logistical hurdles. As Rosenbluth wrote, “We think some investors have cooled on the fund as HACK had been involved in multiyear legal battle that is likely to result in HACK being reorganized as a new fund run by Exchange Traded Concepts, not current provider ETFMG, and tracking a different benchmark, pending shareholder approval.” HACK has seen about $170 million in outflows this year, according to CFRA’s First Bridge data.

Select Cybersecurity ETFs

YTD Return

YTD Flows, millions

Assets, millions

First Trust Nasdaq Cybersecurity
CIBR,
+0.28%
18%

$645

$2,092

ETFMG Prime Cyber Security
HACK,
-0.08%
19%

-$170

$1,528

iShares Cybersecurity and Tech
IHAK,
+0.39%
23%

$93

$112

Global X Cybersecurity
BUG,
+0.81%
31%

$28

$34

Source: CFRA’s First Bridge Database, as of August 10

What’s more, while the need for storage space — cloud computing — has been clear all along, the need for changes and enhancements to cybersecurity in the transition to a work-from-home economy has only more recently become clear, Rosenbluth noted. 

“The work-from-home shift has made it difficult, if not impossible, for IT staff to remotely enforce corporate-defined security policies due to a lack of logical and physical control of managed and unmanaged devices and their access networks (i.e. home Wi-Fi),” he wrote. “In addition, the absence of a virtual presence on end users’ devices and their access networks is making it challenging for security teams to identify shadow IT and anomalous activity by end users and attackers due to a lack of telemetry.”

That may represent an opportunity for cybersecurity companies, and the ETFs that track them, CFRA thinks.

As noted in the tables above, in the year to date, the smallest ETFs in each category are crushing their competition. The WisdomTree Cloud Computing ETF has returned 53% so far in 2020, but has just $600 million in assets under management, a fraction of the $4.6 billion managed by the First Trust Cloud Computing fund. Similarly, the Global X Cybersecurity fund, with just $34 million, has gained 31%, compared with 18% for the category leader, the First Trust Nasdaq Cybersecurity fund, which has $2.1 billion.

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