The WisdomTree Cloud Computing Fund (WCLD) follows the BVP Nasdaq Emerging Cloud Index, but simply because this cloud computing exchange traded fund is passively managed that doesn’t mean it’s not dynamic at the holdings level.
WCLD, which launched in September 2019, rebalances on a semiannual basis, and over its two-plus years on the market, the fund is developing a reputation for rebalances that are more eventful than other ETFs, confirming that the BVP Nasdaq Emerging Cloud Index is more flexible than a standard index.
“WCLD now holds 76 companies, 26 more than it did at its 2019 inception. Given that the Fund added 20 companies alone this February, investors may be surprised that the constituent list has only increased by a net number of 26 companies,” notes WisdomTree analyst Kara Marciscano.
With 76 holdings, WCLD has a roster that’s home to nine more stocks than the largest ETF in the cloud computing category. The added depth is a luxury, but WCLD’s underlying index doesn’t add components simply for the sake of increasing roster size.
“As a refresher, WCLD follows a rules-based methodology that resets constituents and weights back to equal weight every February and August. It is a simple, yet effective, approach that provides significant exposure to fast-growing, emerging businesses that are often overlooked or diluted in market cap-weighted benchmarks,” adds Marciscano.
As such, WCLD isn’t heavily allocated to cloud giants such as Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Salesforce (NYSE:CRM). Of that trio, only Salesforce is a member of the WCLD lineup and none of the ETF’s 76 holdings exceed a weight of 1.76%, as of March 10.
Interestingly, while WCLD added some small-cap stocks in the aforementioned rebalance, the fund actually became less expensive on valuation.
“The valuation of the portfolio had a nice reduction from 9 times to 8.4 times price-to-sales as the strategy adjusted away from large- and mid-cap exposure and added 15% to small-cap cloud company exposure,” notes Marciscano. “As the value over growth rotation took hold earlier this year, we did a pulse check on the valuations of our megatrend ETFs—at that point, WCLD was valued at 11.5 times price-to-sales. At today’s 8.4 times price-to-sales valuation, WCLD is two turns below its historical minimum valuation and 10 turns below its historical maximum valuation.”
Small-cap stocks now account for a quarter of WCLD’s roster while mid caps represent nearly 41%.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.