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Another Cloud Computing ETF in the Making

Sanghamitra Saha
Fortune Brands (FBHS) is poised to gain from solid segmental growth opportunities, buyouts and high rewards to shareholders. Rising costs and debts are creating headwinds.

Technological advancement is touching every sphere of life, cloud computing being one such area. This space has been gaining momentum of late. Global X has been trying to make inroads in the space and has filed a new ETF. It is called Global X Cloud Computing ETF. Its ticker code and expense ratio are not decided yet.

Per a source, spending on cloud computing services is rising faster than anticipated, with software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS) deserving a special mention. Capital is being deployed in sectors like government, health care, manufacturing, and retail.

Inside the Proposed Fund

The fund tracks the Indxx Global Cloud Computing Index. The fund invests at least 80% of its total assets in the securities of the Underlying Index and in American Depositary Receipts and Global Depositary Receipts, based on securities in the Underlying Index.

The underlying companies license and deliver mainly “(i) software over the Internet on a subscription basis (SaaS), (ii) provide a platform for creating software applications which are delivered over the Internet (PaaS), (iii) provide virtualized computing infrastructure over the Internet (IaaS) (iv) own and manage facilities customers use to store data and servers and (v) manufacture or distribute infrastructure and/or hardware components used in cloud”, per the prospectus. 

How Does It Fit in a Portfolio?

Cloud computing is a process in which data or software is stored outside of a computer, but can be easily accessed from anywhere at any time via the Internet. This idea is very effective as it helps firms lower IT costs by eliminating the need for servers and also related maintenance costs.

Also, it provides greater accessibility. Since everything is on the Internet, users can access any data or document any moment. Needless to say, such advantages will make it a thing of tomorrow.

Global investment in cloud services has increased leaps and bounds in recent years as more companies have opted for online infrastructure provided by the likes of Amazon AMZN, Microsoft MSFT and Alphabet GOOGL (read: 4 Tech ETFs to Ride on Oracle's Solid Q2).

Research firm Gartner expects worldwide public cloud revenues to cross the $278-billion mark in 2021, up from $145 billion in 2017. Europe’s public cloud market is expected to expand 22% annually until 2022, per International Data Corporation (IDC). This is also helping U.S. cloud service providers as there are not many European players, per an article published on CNBC.

Competition

The fund should not face much competition in this place as there is only one player currently — First Trust Cloud Computing ETF SKYY. The fund charges 60 bps in fees and enjoys a first-mover advantage. It has about $1.78 billion in assets. So, the new fund, if approved, needs to charge competitively to see good business (see all Technology ETFs here).  

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