Cloud Computing Is a Growing Industry to Tap

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.

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 Intelligence Report, Investing Edge, 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.