Cloud computing.
It has become the “It Girl” of the internet age, and despite its huge growth over the past several years, cloud computing remains a still-growing industry that is becoming increasingly important within the technology center. The technology allows individuals and businesses to store files on a remote database that is accessible via the Internet, offering both an alternative method of storage and a method of backing up data.
Cloud computing has gained my attention because it has proven quite popular, and quite profitable. Numerous companies have found success delving into the billion-dollar industry. With the technology becoming more widely used, many investors may want to benefit from the growth of this industry as well.
First Trust Cloud Computing ETF (SKYY) is one such way to gain exposure to the cloud computing market. SKYY tracks an index of companies that are specifically involved in the cloud computing industry. This fund is managed by First Trust, and was the first mover to offer exposure to cloud computing stocks in the exchange-traded fund (ETF) space.
Prior to June 24, 2019, SKYY tracked the ISE Cloud Computing Index, but now uses its own index to track stocks. This index takes all stocks that fall into at least one of its three groups: Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS).
It then applies additional size, liquidity and tradability screens, and assigns scores of 3, 2 and 1, respectively, to these groups. A stock’s weight in the index is its score divided by the sum of all scores, which is then modified so that no single security exceeds a 4.5% weight in the portfolio. Firm size (market cap) has no direct bearing in weighting.
This fund invests more than 80% of its total assets into the technology sector, with around 98% of its investments in U.S. companies. Top holdings include Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), MongoDB, Inc. (MDB), Oracle Corporation (ORCL), Arista Networks, Inc. (ANET) and International Business Machines Corporation (IBM).
SKYY’s expense ratio is currently at 0.60%. However, its returns have not been favorable as of late. As of March 14, SKYY’s total returns are at -7.00% for the last month and -0.03% for the past three months, though it has seen a return of 3.96% year to date (YTD). With the technology sector’s continued growth, this fund does have a chance of rebounding in the coming months.
While this fund provides investors with an entry point into the growing market of cloud sharing technologies, it’s important to consider your individual financial situation and goals carefully. Investors are always encouraged to do their due diligence before adding any stock or ETF to their portfolios.
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.
