With the technology sector soaring this year, some investors are considering more tactical plays, such as the First Trust ISE Cloud Computing Index Fund (NasdaqGM: SKYY). SKYY, the first and only exchange traded fund dedicated to cloud computing equities, is up nearly 18% year-to-date.
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.
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.
Long-term trends bode well for SKYY.
“The software market will jump the most, growing from $39 billion in 2016 to an estimated $110 billion in 2020, but infrastructure and platform should soar as well, from $38 billion to $70 billion and $13 billion to $30 billion, respectively, according to estimates from ClearBridge Investments,” said Morningstar in a research note.
Among SKYY’s 30 holdings are fabled stocks such as Amazon.com Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Facebook Inc. (NASDAQ: FB) and Netflix, Inc. (NASDAQ: NFLX).
“Indeed, many stocks have seen their prices climb thanks to their cloud efforts. The ISE Cloud Computing Index is up 35% since January as of this writing, compared with the S&P 500’s 8.5% gain. As more companies adopt this technology, investors are likely to see even greater gains,” according to Morningstar.
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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.
“While investors do have to be picky, it’s hard to go wrong with the bigger, more promising names as the cloud is only growing form here,” said Morningstar.
The median market value of SKYY’s holdings is $35.1 billion.
Tom Lydon’s clients owns shares of Apple and Facebook.