3 Scorching Hot Software ETFs

Whether it's cloud computing, other forms of enterprise, video games or another segment, software stocks and exchange traded funds are growing at torrid paces this year.

On Wednesday, several software ETFs spanning a variety of genres extended their good fortune from the second quarter, soaring to start the third while entering the all-time high club.

Not all software ETFs are alike, but the group has at least one thing in common: concerns that the group is becoming overvalued. Then again, growth stocks keep outperforming their value rivals — and valuation alone isn't a reason to dump a security.

With the valuation warning in mind, here's a trio of soaring software ETFs.

WisdomTree Cloud Computing Fund (WCLD)

All the WisdomTree Cloud Computing Fund WCLD has done is more than double off its March lows and gain about 73% in the second quarter. It's even up nearly 11% since the last time it was highlighted in this space.

Those numbers are enough to make WCLD, which is the newest of the dedicated cloud ETFs, the leader of that pack this year.

WCLD fills an important void created by many traditional broader market funds: while those products are heavy on tech stocks, the large-cap technology sector is surprisingly lightly allocated to pure play cloud companies.

“Given the significant weight the Nasdaq 100 and S&P 500 indexes hold in the Software & Services industry group, investors may be unaware of their limited cloud industry exposure. WCLD may be a fitting solution for adding unique cloud exposure to fill the gap,” according to WisdomTree.

SPDR S&P Software & Services ETF (XSW)

The SPDR S&P Software & Services ETF XSW isn't a dedicated cloud ETF — and that's alright. The ETF surged more than 44% in the second quarter and joined the all-time high club Wednesday.

That's good work for an equal-weight ETF that doesn't allocate more than 0.77% to any of its 167 holdings.

XSW components are above their long-term valuation metrics in aggregate, but the premiums are warranted.

“While the S&P 500 is projected to have negative sales growth over the remaining three quarters of this year, software and services firms are projected to continue to grow their top line each quarter,” according to State Street.

“Valuations are a bit above their long-term average for the industry, but with a lack of growth in our current environment the premium for a growth industry with the potential to reshape society is warranted.”

Invesco Dynamic Software ETF (PSJ)

The Invesco Dynamic Software ETF PSJ is another example of a non-dedicated cloud ETF that's on a roll.

PSJ offers an unique weighting scheme that emphasizes price momentum, earnings momentum, quality, management action and value.

For investors wanting to bet on a basket of smaller software stocks, PSJ is worthwhile idea because just over one-third of its 30 components are classified as large caps.