Designed to provide broad exposure to the Technology ETFs category of the market, the First Trust Cloud Computing ETF (SKYY) is a smart beta exchange traded fund launched on 05/27/2011.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Because the fund has amassed over $3.87 billion, this makes it one of the larger ETFs in the Technology ETFs. SKYY is managed by First Trust Advisors. Before fees and expenses, SKYY seeks to match the performance of the ISE Cloud Computing Index.
The ISE Cloud Computing Index is a modified market capitalization weighted index designed to track the performance of companies actively involved in the cloud computing industry.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Annual operating expenses for this ETF are 0.60%, making it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 0%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
For SKYY, it has heaviest allocation in the Information Technology sector --about 84.60% of the portfolio --while Telecom and Consumer Discretionary round out the top three.
Taking into account individual holdings, Pure Storage, Inc. (class A) (PSTG) accounts for about 4.60% of the fund's total assets, followed by Alphabet Inc. (class A) (GOOGL) and Arista Networks, Inc. (ANET).
Its top 10 holdings account for approximately 38.19% of SKYY's total assets under management.
Performance and Risk
The ETF has gained about 7.03% so far this year and is up about 36.48% in the last one year (as of 01/30/2025). In the past 52-week period, it has traded between $86.45 and $130.46.
The fund has a beta of 1.11 and standard deviation of 31.26% for the trailing three-year period, which makes SKYY a medium risk choice in this particular space. With about 62 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Cloud Computing ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Global X Cloud Computing ETF (CLOU) tracks INDXX GLOBAL CLOUD COMPUTING INDEX and the WisdomTree Cloud Computing ETF (WCLD) tracks BVP NASDAQ EMERGING CLOUD INDEX. Global X Cloud Computing ETF has $378.39 million in assets, WisdomTree Cloud Computing ETF has $492.58 million. CLOU has an expense ratio of 0.68% and WCLD charges 0.45%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Technology ETFs.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>First Trust Cloud Computing ETF (SKYY): ETF Research Reports
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Arista Networks, Inc. (ANET) : Free Stock Analysis Report
Pure Storage, Inc. (PSTG) : Free Stock Analysis Report
Global X Cloud Computing ETF (CLOU): ETF Research Reports
WisdomTree Cloud Computing ETF (WCLD): ETF Research Reports
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
