Investors often hear about hot new trends that are supposed to take off, but history shows not every “disruptive” technology is destined to be a moneymaker.
One fast-growing segment of the tech sector that has proven itself out in recent years, however, involves cloud computing stocks that have revolutionized how we interact with data.
It used to be you had to have enough memory on your phone to store pictures and songs, or enough server space in the office to keep all your company’s emails and files. Not only is that no longer the case, but saving data to the cloud allows you to access that information instantly from anywhere — and with much less upfront investment.
This durable tech trend continues to gather steam in 2021, so if you’re looking to invest in cloud computing stocks, here are five exchange-traded funds to check out:
— First Trust Cloud Computing ETF (ticker: SKYY)
— Global X Cloud Computing ETF (CLOU)
— WisdomTree Cloud Computing Fund (WCLD)
— First Trust Dow Jones Internet Index Fund (FDN)
— ARK Next Generation Internet ETF (ARKW)
First Trust Cloud Computing ETF (SKYY)
With about $6 billion in assets under management, the First Trust Cloud Computing ETF is the leading cloud fund out there.
It’s comprised of about 60 total holdings, with the top positions including obvious Big Tech players such as Google parent Alphabet ( GOOGL) as well as smaller stocks you may not have heard of like Kingsoft Cloud Holdings ( KC), a roughly $11 billion Chinese cloud computing company. Roughly 90% of assets are in the U.S., however, so the international picks are just a small part of this cloud computing ETF.
Shares of SKYY rose nearly 60% last year, significantly outperforming the 16% or so for the S&P 500 in the same period.
Global X Cloud Computing ETF (CLOU)
Another one of the best cloud ETFs, CLOU has more than $1 billion under management.
It has a much more focused list of holdings, however, with fewer than 40 total positions at present. The portfolio is relatively equally spread out across this shorter list, with no single position worth more than about 5% of the fund’s total right now. Top holdings at present include cloud voice and text message provider Twilio ( TWLO) and cloud-based cybersecurity firm Zscaler ( ZS).
Shares of this cloud computing ETF have dipped slightly since their February highs, but they are still up more than 70% in the last 12 months.
WisdomTree Cloud Computing Fund (WCLD)
Another roughly $1 billion cloud computing ETF is this offering from WisdomTree.
It’s also the cheapest of the major dedicated funds, with an annual expense ratio of 0.45%, or $45 on every $10,000 invested. That’s compared with 0.6% or more for the prior funds.
The list is also one of the most diversified, with more than 50 holdings but no single position accounting for more than about 2% of the portfolio — and thanks to an ” equal weight” approach, the fund regularly rebalances to try and get each stock even with each other. Top holdings include file hosting service Dropbox ( DBX) and payroll and human resources tech provider Paycom ( PAYC).
First Trust Dow Jones Internet Index Fund (FDN)
Of course, it’s worth pointing out that just about any digital player these days could be considered a cloud computing company.
The most popular example of this is Salesforce.com ( CRM), which began offering “software as a service” more than a decade ago through software licensed on a subscription basis that is centrally hosted.
When you think about many of the applications you use in your personal or business life, this model applies in 2021. As a result, FDN is populated with a host of companies that could be considered cloud stocks — with top position Amazon.com ( AMZN) a prime example, thanks to its fast-growing Amazon Web Services division. Smaller positions in companies such as Cloudera ( CLDR) and Fastly ( FSLY) should also satisfy investors who want exposure to purer cloud-based platforms and service providers.
Overall, FDN may not be as much of a pure play as some other funds on this list, but it’s certainty a substantial cloud computing ETF in its own right with $10 billion in assets, and an expense ratio of 0.52%.
ARK Next Generation Internet ETF (ARKW)
Of course, investors may be less interested in existing internet giants that have just happened to fall into the cloud computing revolution.
If instead you want to look beyond Google and Amazon to the next generation of leaders, ARKW offers a powerful play both on the cloud computing revolution and other emerging tech trends, such as cybersecurity and blockchain.
In part, the fund’s holdings “are focused on and expected to benefit from shifting the bases of technology infrastructure to the cloud.” Obviously not every innovator is a core cloud stock, however, so you’ll have to be OK with the inclusion of companies like telemedicine firm Teladoc Health ( TDOC) and mobile payments giant Square ( SQ) as well.
Still, if you are interested in cloud computing because of its high-tech potential, this may be a plus and not a minus. Something to note, ARKW also comes with a slightly higher expense ratio of 0.79%.
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