Cloud Computing ETF Reaches For The Sky

Gone are the days when the First Trust Cloud Computing ETF SKYY was assailed as a niche fund, too narrowly focused to make it in the hyper-competitive world of exchange-traded funds. SKYY turned six years old earlier this month, and the lone ETF dedicated to the fast-growing cloud computing space is aging nicely as highlighted by $935.2 million in assets under management.

SKYY, which tracks the ISE Cloud Computing Index, is up 20.3 percent year to date and hit another record high Monday, something the ETF has recently been doing with regularity. SKYY's 30 holdings included dedicated cloud companies, technology conglomerates and non-pure play cloud computing firms.

Non-pure play cloud firms are companies “that focus outside the cloud computing space but provide goods and services in support of the cloud computing space,” according to First Trust. 

What's Driving SKYY Higher

None of SKYY's holdings account for more than 5 percent of the ETF's weight, and the ETF's largest holding is a name familiar to scores of investors: Netflix, Inc. NFLX. The ETF is chock full of other well-known cloud plays, including Amazon.com Inc. AMZN and Microsoft Corporation MSFT.

Shares of Dow component Microsoft have “surged 33 percent in the past year to a record amid signs that the changes are taking root, and the company rewarded that optimism by posting a significant gain in revenue from commercial cloud products along with wider margins for the business,” according to Bloomberg.

Amazon is one of the dominant names in cloud computing. Amazon Web Services, the company's cloud unit, is one of the most profitable parts of Amazon. AWS customers include customers such as Airbnb, Slack and Netflix “which now use it as their mainstay for running all their core applications. The AWS business grew 55 percent year over year in 2016 compared to roughly 25 percent for its core business,” according to Benzinga.

Almost A FANG ETF

SKYY's status as a FANG ETF is credible as the FANG quartet of stocks combine for about 18.5 percent of the ETF's weight. Even with the presence of Amazon and Netflix, which are classified as consumer discretionary companies and as such do not reside in traditional technology ETFs, SKYY is only offering modest out-performance of legacy tech ETFs this year.

Still, investors are displaying enthusiasm for SKYY as highlighted by year-to-date inflows of almost $160 million.

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