The First Trust ISE Cloud Computing Index Fund (NasdaqGM: SKYY) is among the technology ETFs in rally mode. SKYY, the first and only ETF dedicated to cloud computing companies, gained more than 3% last week on its way to a series of all-time highs.
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.
SKYY is up more than 17% year-to-date and earnings multiples on some cloud companies are rising.
“Multiples are rapidly increasing as well, suggesting that investors are getting more bullish on the sustainability of the business models,” reports CNBC. “The 50 companies in the Bessemer Venture Partners Cloud Index now trade for an average of 7.8 times revenue over the next 12 months, up 27 percent from a forward sales multiple of 6.1 at the beginning of the year. The BVP index uses enterprise value to revenue.”
SKYY: $1.6 Billion AUM
SKYY, which debuted almost seven years ago and today has almost $1.6 billion in assets under management, holds 30 stocks. The ETF’s holdings are split among three categories: pure play cloud companies, technology conglomerates with cloud exposure and non-pure play cloud companies that provides services to companies in the cloud space.
Some cloud companies are using subscription models to entice customers.
“This new generation of companies sell cloud-based services, generating some money initially but getting much more over time as customers renew their deals and demand more features,” according to CNBC.
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.
Top 10 holdings in SKYY include Netflix, Inc. (NASDAQ: NFLX), Amazon.com Inc. (NASDAQ: AMZN) and Alphabet Inc. (NASDAQ: GOOGL).
“IDC projects that cloud services revenue will more than double to $276.8 billion by 2021 from $129.7 billion last year, as more large global enterprises push workloads to the cloud,” reports CNBC.
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