Exchange Traded Funds (ETFs)

Harnessing Cloud Computing

(Note: Today’s ETF Talk is the third in a series of funds designed to profit from the “stay-at-home” trend in COVID-19 America.)

While Steve Wozniak, an Apple (NASDAQ:AAPL) co-founder, once remarked that one should “never trust a computer you can’t throw out a window,” cloud computing is augmenting business performance.

Even though the market has recovered somewhat from the coronavirus-related crash in the middle of March and some countries around the world have begun to initiate plans to reopen their respective economies, the end of the epidemic-related lockdown remains uncertain. As a result, the focus of many investors has pivoted towards stocks and sectors that are doing well, despite the economic shutdown.

One such sector potentially could be cloud computing, especially since the coronavirus has shifted more and more white-collar work away from the offices and toward long-distance teleworking. Cloud computing software, including Microsoft’s Azure platform and Google’s Google Drive, help make teleworking feasible by providing employees with access to their work for sharing with their colleagues as never before.

The First Trust Cloud Computing ETF (NASDAQ: SKYY) is an ETF that tracks an index of companies that are involved in the cloud computing industry. The stocks are ranked by infrastructure, platform and software. A company’s weight in the index is its score divided by the sum of all scores. As a result, this ETF’s managers use no other screens and do not attempt to predict which cloud computing company is going to come out on top in the sector.

Some of this fund’s top holdings include Amazon.com Inc. (NASDAQ:AMZN), Microsoft Corp. (NASDAQ:MSFT), Alphabet Inc. Class A (NASDAQ:GOOGL), Oracle Corporation (NYSE:ORCL), Shopify, Inc. Class A (NYSE:SHOP), MongoDB, Inc. Class A (NASDAQ:MDB), Citrix Systems, Inc. (NASDAQ:CTXS) and Alibaba Group Holding Ltd. (NYSE:BABA).

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This fund’s performance has risen after the recent market downslide. As of April 24, 2020, SKYY has been up 14.76% over the past month and down 5.73% for the past three months. It is currently up 1.08% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $2.86 billion in assets under management and has an expense ratio of 0.60%, meaning that it is more expensive to hold in comparison to many other exchange-traded funds.

In short, while SKYY does provide an investor with a chance to profit from the world of cloud computing, the sector may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.