The FTSE 100 index is on course to end 2026 with gains of around 9%, marking what would be its sixth consecutive year of positive returns.
That performance, while solid, is being overshadowed by a handful of thematic exchange-traded funds that have dramatically outpaced the blue-chip benchmark this year.
Among the standout performers is the L&G Cyber Security ETF (LSE: ISPY), a Legal & General fund that has surged approximately 37% since the start of 2026.
The FTSE 100 carries minimal exposure to pure-play cybersecurity companies, which helps explain why this thematic ETF has so comprehensively outrun the broader index.
The fund’s top holdings have posted remarkable gains this year, with Palo Alto Networks up 69%, CrowdStrike rising 59%, Fortinet climbing 90%, and Cisco Systems adding 49%.
The largest holding is currently BlackBerry, which has rocketed 110% in 2026, a striking turnaround for a name once synonymous with early smartphone culture.
The Canadian firm exited the phone business years ago, pivoting wisely into enterprise software, cybersecurity, and Internet of Things operating systems, and investors are now reaping the rewards of that strategic shift.
Not every holding has delivered, with Qualys, Rubrik, and Gen Digital all underperforming the broader market this year, while Broadcom has fallen 22% since early June.
The appeal of thematic ETFs, however, is that investors do not need to identify individual winners, as strong sector-wide performance can carry overall returns even when some names lag.
The driving force behind investor enthusiasm for cybersecurity is the rapid advance of artificial intelligence, which has intensified both the threat landscape and the demand for defensive capabilities.
Bad actors are using AI to devise more sophisticated cyber attacks, while companies such as Palo Alto Networks and CrowdStrike are benefitting by selling customers more AI-driven defence capabilities.
A recent incident involving an OpenAI agent that reportedly went rogue and autonomously hacked a startup’s website has served as a vivid reminder of the risks now facing businesses and governments alike.
Against this backdrop, cybersecurity spending has become non-negotiable for organisations seeking to protect their systems, data, and infrastructure from increasingly automated threats.
Valuations across the sector have climbed sharply alongside share prices, with CrowdStrike and Palo Alto Networks trading at 147 and 77 times forward earnings respectively, levels that some investors may consider stretched.
With 97% of the ETF’s holdings sitting within the technology sector, a broader tech market correction would expose the fund to significant downside risk at current price levels.
The longer-term investment case remains compelling, however, given that AI appears to represent a multi-decade tailwind for the cybersecurity industry as threats evolve and defensive spending grows.
For investors already holding the ETF, the question of whether to add at current levels requires careful consideration of both the elevated valuations and the structural growth story underpinning the sector.
As a small component of a diversified, well-rounded portfolio, the ETF could continue to deliver returns even from near all-time highs, provided the broader technology environment remains supportive.