“Cloud Computing” made its way to the exchange traded fund landscape in July of this year, with First Trust ISE Cloud Computing Index (NasdaqGM: SLYY) and E-TRACS Monthly 2X Leveraged ISE Cloud Computing (NYSEArca: LSKY), which listed earlier this month.
Cloud computing refers to the delivery of a service instead of an actual physical product to the consumer, utilizing a network (such as the Internet) to transfer software, information, and other shared resources.
SKYY has gathered approximately $57 million in assets since its launch and we expect it to be even more active amidst Amazon’s (NasdaqGS: AMZN) earnings release last night after the closing bell, as the stock will likely be extremely active. Amazon shares were down 10% in morning trading Wednesday.
AMZN is the top holding in SKYY (4.64% weighting), as the index follows a modified equal dollar weighted methodology. Other holdings that round out the top five in the fund are BBBB (4.47%), RNOW (4.42%), CSCO (4.10%), and TDC (4.04%). Other familiar names in the index include GOOG and ORCL.
If Amazon continues to sell off sharply in days ahead as we saw yesterday during the trading session as well as in the after-hours session after the earnings release, we may some portfolio managers who are long AMZN selling out of their positions in the stocks (either realizing gains or losses), and possibly buying back into the position via SKYY for tax reasons heading into year’s end.
This sort of activity is actually quite common amidst routine rebalancing as it enables the manager to still maintain some long exposure to AMZN without the single stock risk associated with owning the shares outright and it may create a beneficial tax situation depending on the manager’s individual circumstances.
Likewise, LSKY may see some traction as well, with those that believe the sell-off in the space (and specifically AMZN) is overdone whom are looking to leverage exposure to a potential rebound.
Since inception, SKYY has greatly trailed the broader technology sector, as the fund is down 12.25% versus the Nasdaq-100 losing 1.80% during the same time period.
First Trust ISE Cloud Computing Index
Chart source: StockCharts.com.
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