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Cloud Computing ETF Space Gets Crowded

Sanghamitra Saha
Smart Beta ETF report for DFJ

Technological advancement has been driving ETF issuers to come up with products of emerging concepts, with cloud computing being one such area. This space has been gaining momentum of late. The space has been first tapped by First Trust in 2011 with the launch of First Trust ISE Cloud Computing Index Fund SKYY. The fund is now a $1.95-billion product, charging 60 basis points (bps) annually.

Its success and the sector’s exponential growth issues have been driving other issuers like Global X, Tortoise and AdvisorShares to place products in this arena.

In fact, AdvisorShares has rolled out an actively managed ETF in early February, namely AdvisorShares SabreTooth ETF BKCH, that targets companies that deploy or plan to use digital and cloud computing technologies (read: Another Cloud Computing ETF in the Making). 

Inside the New Fund

The fund invests in U.S.-listed equities and American depositary receipts of such digital and cloud companies and does not invest in cryptocurrency, per the issuer. It charges 85 bps in fees. The fund held Amazon.Com, Zendesk and VMware in its portfolio.

How Does It Fit in a Portfolio?

Cloud computing is a process in which data or software is stored outside 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 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.

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.

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.

Competition

The fund should not face much competition in this place as there are not many players right now in the market. Apart from SKYY, Tortoise launched a product in late January, namely Tortoise Cloud Infrastructure Fund TCLD, which charges 0.40% in expense ratio.

TCLD’s index takes into account large firms with smaller cloud-based companies, percentages of revenues of which however are prevailing in the industry. Unlike these products, BKCH is an active ETF which sets it apart from the duo. Apart from these ETFs, Global X is also in the queue for an ETF rollout (see all Technology ETFs here).

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
First Trust Cloud Computing ETF (SKYY): ETF Research Reports
 
ADVSR-SABRTOOTH (BKCH): ETF Research Reports
 
Tortoise Cloud Infrastructure Fund (TCLD): ETF Research Reports
 
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