Cloud Computing

Top 3 ETFs For Investing In Cloud Computing

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Prableen Bajpai
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Once seen as a nascent technology, cloud computing has continued to gain traction, making inroads across industries, sectors, and forms of enterprise. Today, it is among the major disrupters in the information technology space, with more and more enterprises working on a cloud policy or moving towards its adoption.

Here’s a look at exchange traded funds focused on cloud computing.

Cloud computing can be defined as “on-demand access, via the internet, to computing resources—applications, servers (physical servers and virtual servers), data storage, development tools, networking capabilities, and more—hosted at a remote data center managed by a cloud services provider.”

Cloud computing comes with multiple advantages such as flexibility, easy access, scalability, disaster recovery, agility, energy efficiency, and opportunity for enterprises to pay for resources they need without undertaking costly investments in rarely used systems thereby reducing excessive capital expenditure. The adoption of cloud companies is not limited to companies but spreads across government institutions. In the U.S., the ‘Federal Cloud Computing Strategy’ was released in February 2011; it read, “Cloud computing has the potential to play a major part in addressing these inefficiencies and improving government service delivery.”

In 2020, the revenue from the worldwide public cloud services market totaled $312 billion, according to a report by International Data Corporation (IDC). According to an estimate, the cloud services market size will reach $927.51 billion by 2027, growing at a compound annual growth rate (CAGR) of 16.4% from 2020 to 2027. Another report projects the cloud computing market to reach $1025.9 billion by 2026, growing at a CAGR of 18% from 2019 to 2027. While the projections differ across research firms, all of them paint a bright picture.

In terms of market dominance, Amazon (AMZN) and Microsoft (MSFT) are the two market leaders that continue to account for over half of worldwide cloud revenues, according to data for Q1 2021. Beyond these two companies, Alibaba (BABA), Alphabet (GOOG, GOOGL), Tencent, and Baidu (BIDU) emerge as prominent names, followed by by IBM (IBM), Salesforce (CRM), Oracle (ORCL), NTT, SAP SE (SAP), and Fujitsu.

Gartner estimates that by 2024, “more than 45% of IT spending on system infrastructure, infrastructure software, application software and business process outsourcing will shift from traditional solutions to cloud.”

Here’s a look at the ETFs which provide an opportunity to invest in companies from the cloud computing space (in no particular order).

Global X Cloud Computing ETF(CLOU)

Launched in 2019, the Global X Cloud Computing ETF provides an exposure to around 35 companies in the cloud space by tracking the Indxx Global Cloud Computing Index. The index is focused on companies involved in the delivery of computing services—servers, storage, databases, networking, software, analytics, and more. The U.S. dominates its geographical allocation with 85% weightage while the rest is remaining is directed towards Canada, UK, China, and New Zealand. The scheme has $1.27 billion as assets under management and an expense ratio of 0.68%. The top ten holdings of CLOU add up to 41.5%, and include:

  • Dropbox (DBX)
  • Zscaler (ZS)
  • Shopify (SHOP)
  • Zoom Video Communications (ZM)
  • Salesforce (CRM)
  • Akamai (AKAM)
  • Digital Realty Trust (DLR)
  • Twilio (TWLO)
  • Proofpoint (PFPT)
  • Netflix (NFLX)

WisdomeTree Cloud Computing Fund (WCLD)

WisdomeTree Cloud Computing Fund provides an exposure to the BVP Nasdaq Emerging Cloud Index, an equally weighted Index designed to measure the performance of emerging public companies focused on delivering cloud-based software to customers. WCLD has a portfolio of around 60 stocks with 55-60% allocation in large cap companies, 35% in mid-caps while small caps are contained below 10%. The ETF was launched in 2019, and currently has an expense ratio of 0.45% with $1.14 billion as assets under management. The top ten stocks add up to around one-fifth of the portfolio, and include:

First Trust Cloud Computing ETF (SKYY)

Launched in 2011, the First Trust Cloud Computing ETF was the first ETF focused on the cloud computing industry. SKYY tracks the ISE CTA Cloud Computing Index, which is an equal weighted index designed to track up to 80 companies involved in the cloud computing industry. SKYY has $5.96 billion as assets under management and an expense ratio of 0.60%. The current portfolio of the fund has around 66 stocks with 35.81% in the top ten holdings.

Overall, these ETFs are a sound way to be part of the cloud shift that is underway by offering instant diversification within the industry across a range of companies.

Disclaimer: Information on funds based on factsheets. Data as on sectoral weightage, top constituents and assets as of June 6, 2021, and is subject to change. The author has no position in the index mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Prableen Bajpai

Prableen Bajpai

Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.

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