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Can Global X New Cloud Computing ETF See Success?

Sanghamitra Saha
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Technological advancement has been driving ETF issuers to come up with products on emerging concepts, cloud computing being one such. This space has been gaining momentum of late but was first tapped by First Trust in 2011 with First Trust ISE Cloud Computing Index Fund (SKYY). This fund is now a $2.28 billion product, charging 60 bps annually.

The success of SKYY and the sector’s exponential growth are encouraging other issuers like Global X to play this arena.  In fact, Global X recently rolled out an ETF called Global X Cloud Computing ETF CLOU.

Inside the New Fund

The fund tracks the Indxx Global Cloud Computing Index. It 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.  The fund charges 68 bps in fees and hold Zscaler, Shopify and Paycom Software in its portfolio.

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 anywhere, at any time via the Internet. This idea is effective as it helps firms lower IT costs by eliminating the need for servers and related maintenance costs.

Also, cloud computing provides greater accessibility. Since everything is on the Internet, users can access any data or document any moment. Needless to say, such advantages will surely give it an edge in the future.

Global investment in cloud services has increased leaps and bounds in recent years as more companies have opted online infrastructure provided by the likes of Amazon AMZN, Microsoft MSFT and Alphabet GOOGL.

Research firm Gartner expects worldwide public cloud services market to expand from $182.4 billion in 2018 to $331.2 billion in 2022 at a CAGR of 12.6%.

Spending on Infrastructure-as-a-Service (IaaS) is expected to increase from $30.5 billion in 2018 to $38.9 billion in 2019, marking 27.5% growth. Platform-as-a-Service (PaaS) spending is predicted to grow from $15.6 billion in 2018 to $19 billion in 2019, marking 21.8% expansion.

Per Global X, “the global cloud computing market is estimated to be worth well over $300 billion by 2022, up from about $188 billion today and growing at a CAGR of 14.6%.”

Competition

The fund should not face much competition in this place as there are not many players right now. Apart from SKYY, Tortoise launched a product in late January 2019, namely Tortoise Cloud Infrastructure Fund TCLD, which charges 0.40% in expense ratio (read: IBM ETFs to Watch Post Q1 Earnings).

Then there is the actively managed AdvisorShares Sabretooth ETF BKCH which was launched in February. The fund charges 85 bps in fees (read: Video Gaming Industry Warming Up: Play These ETFs).

However, SKYY enjoys a first-mover advantage. Also, the new Global X fund charges a bit higher than SKYY, which can act as a hurdle in terms of asset generation (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
 
GLBL-X CLD CPU (CLOU): ETF Research Reports
 
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