Cloud Computing ETF Faces Cloudy Skies

The First Trust ISE Cloud Computing Index Fund (NasdaqGM: SKYY) is up about 4% year-to-date, a solid showing, though it lags the 4.5% returned by the Nasdaq Composite. An alternative view of SKYY, the lone dedicated cloud computing exchange traded fund, is that its 2015 showing has been disappointing.

Disappointing because the ETF is heavily allocated to the so-called FANG stocks – Facebook (NasdaqGS: FB), (NasdaqGS: FB), Netflix (NasdaqGS: NFLX) and Google parent Alphabet (NasdaqGS: GOOG). Amazon, Facebook and Netflix are among the best-performing stocks on U.S. exchanges this year.

Cloud computing refers to a mode of accessing digital information from the internet through web-based tools and applications, instead of directly connecting to a server. The desired data and software packages are stored in servers where a consumer can access them anywhere as long as one has access to the internet. It is SKYY’s somewhat loose interpretation of cloud computing companies that has driven the ETF’s stellar performance. [Tech Investors Love the Cloud]

SKYY tracks the ISE Cloud Computing Index, which “is a modified equal dollar weighted index designed to track the performance of companies actively involved in the cloud computing industry. To be included in the index, a security must be engaged in a business activity supporting or utilizing the cloud computing space, listed on an index-eligible global stock exchange and have a market capitalization of at least $100 million,” according to First Trust.

The ETF’s index can hold companies that are not pure play cloud firms as long as those firms “provide goods and services in support of the cloud computing space.” SKYY can also hold tech conglomerates as long as those companies “indirectly utilize or support the use of cloud computing technology,” according to First Trust.