Cloud computing is the hottest tech market trend this side of artificial intelligence, and — unlike AI — it’s already a big business for which corporate users already have a good use case. So, naturally, some exchange-traded funds, or ETFs, have sprung up to give investors a way to bet on the shift of computing dollars away from servers that companies manage in-house to hardware and software that’s centrally managed by third-party administrators to save money and add flexibility.
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And the cloud industry is still growing. The U.K.-based consultancy MarketsandMarkets Research says cloud computing will grow about 18% annually, becoming a $1.24 trillion market by 2027. Little wonder that a lot of the hottest stocks in tech during the 2019-2021 runup were connected to cloud computing, with the Indxx Global Cloud Computing Index rising 117% from March 2020 to its peak in fall 2021 before dropping 40% in 2022. These stocks have a way to go to reclaim their highs, but they are available for lower earnings multiples now, said Wedbush Securities analyst Dan Ives, who covers the sector.
The list of cloud-specialized ETFs is short, but with tech giants like Amazon.com Inc. (ticker: AMZN), Microsoft Corp. (MSFT) and Alphabet Inc. (GOOG, GOOGL) emerging as top cloud vendors, investors with a casual interest will find themselves some exposure in broader technology funds or even S&P 500 index funds. But for those who want to put a slice of their money behind the specific idea that the bounce back from last year’s decline will outpace the market for a stretch, these are some of the top choices, as tabbed by Aniket Ullal, head of ETF Data & Analytics at New York-based CFRA Research.
“It’s a small universe of funds,” Ullal said. “Some of them are similar because cloud computing is a narrow theme.”
| ETF | Expense ratio |
| First Trust Cloud Computing ETF (SKYY) | 0.6% |
| Global X Cloud Computing ETF (CLOU) | 0.68% |
| Wedbush ETFMG Global Cloud Technology ETF (IVES) | 0.68% |
| Fidelity Cloud Computing ETF (FCLD) | 0.39% |
| WisdomTree Cloud Computing ETF (WCLD) | 0.45% |
First Trust Cloud Computing ETF (SKYY)
This $2.9 billion fund weights its portfolio by whether each of its holdings is active in each part of the cloud computing business — infrastructure, software and services — with a rule saying that no stock can be more than 4.5% of the fund. Relatively pure plays like Pure Storage Inc. (PSTG) go to the top of the list, with Amazon and International Business Machines Corp. (IBM) close behind.
This results in a lower weighting for companies like ServiceNow Inc. (NOW) and Atlassian Corp. (TEAM), which are considered fairly pure cloud plays but aren’t involved in all three segments that First Trust tracks. About half of all funds assets are committed to software companies and a quarter are invested in services businesses, First Trust says.
Performance here reflects the cloud industry’s recent history. The fund is up more than 30% year to date, but three- and five-year returns have been held down by the 2021-22 bust. Ten-year performance averages 13.6%, handily beating the market benchmark. “It’s a systematic approach that includes all the different elements,” Ullal said.
Expense ratio: 0.6%, or $60 annually per $10,000 invested
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Global X Cloud Computing ETF (CLOU)
This $573 million fund highlights reports that the global cloud computing market accounts for less than 15% of global IT spending, leaving major room for growth, citing an Amazon forecast that cloud spending will quadruple between 2021 and 2030.
The fund emphasizes that it will play in stocks that serve either consumers or enterprises, a tendency that shows with the appearance of Netflix Inc. (NFLX) and Dropbox Inc. (DBX) among top holdings. The biggest of its 36 positions is in data center security company Zscaler Inc. (ZS). It’s capitalization-weighted and based on the Indxx Global Cloud Computing Index.
The fund is up more than 20% in the last year. Founded in 2019, it doesn’t have the 10-year history that the First Trust fund has, but three-year returns are negative 1.5% annually. That paints CLOU as a higher-risk, higher-reward affair than its First Trust rival, and slightly more expensive with an expense ratio of 0.68%.
Expense ratio: 0.68%
Wedbush ETFMG Global Cloud Technology ETF (IVES)
This fact won’t make investors any money but might make some smile: The ticker symbol of this $22.9 million fund matches the last name of Wedbush’s voluble technology analyst Dan Ives.
The distinctive thing about its portfolio is that more than half of this fund, which is run by thematic ETF promoter ETF Managers Group, is invested outside the U.S., with top positions in firms based in Japan, Canada and Holland. Its largest U.S. position is in database-software leader MongoDB Inc. (MDB), and that is less than $1 million. It’s missing common names in the cloud space like Amazon and Microsoft, stocks that Ives himself recommends for brokerage clients.
Missing some of the big names may be why the fund has been a less-than-stellar performer. It’s up 14.7% for the 12 months that ended in July, and it is barely positive over the last five years.
Expense ratio: 0.68%
Fidelity Cloud Computing ETF (FCLD)
By Fidelity standards, this fund is tiny at $41 million in assets — but it has had a good 2023, with a nearly 30% year-to-date return. That’s the good news. The bad is that the 2-year-old fund had a rough 2022, and its 12-month return is less than 5%.
The fund says its approach is to “reflect the performance of a global universe of companies across the market capitalization spectrum that provide products or services enabling the increased adoption of cloud computing,” and in practice that means holdings in 56 companies, almost 90% in the U.S. The biggest holdings are in software or software-as-a-service businesses like Oracle Corp. (ORCL) and Salesforce Inc. (CRM), but real estate plays like Equinix Inc. (EQIX) and Digital Realty Trust Inc. (DLR) are represented, too.
The fund’s advantages include a relatively low expense ratio of 0.39% of assets. But whether it’s a good bet will depend on the development of the market and whether the proprietary index Fidelity uses to guide the fund can beat the path of tech stocks generally.
Expense ratio: 0.39%
WisdomTree Cloud Computing ETF (WCLD)
This $690 million fund tracks an index of emerging (i.e., more recent initial public offerings) cloud companies, meaning its core bet is on high growth, high risk and high reward. The index is also equally weighted, meaning the fund skips cloud market leaders Alphabet, Microsoft and Amazon, in favor of MongoDB, customer-experience software maker Freshworks Inc. (FRSH) and cybersecurity company Cloudflare Inc. (NET).
The fund’s issue is that its 2019 founding was ill-timed. Shares zoomed from about $20 in early 2020 to more than $65 in late 2021, then crashed, and have only recovered to about $30. According to Bessemer Venture Partners, which devised the index, the concept has soundly beaten both the S&P 500 and the tech-heavy Nasdaq 100 since the index was created in 2013.
The fund’s path forward, then, depends on whether smaller tech firms regain their mojo faster or slower than Big Tech. That’s especially true for WCLD because it is equally weighted: If tech goes through another period where outperformance is concentrated in giant companies, a capitalization-weighted scheme may be a better bet than this fund or the index on which it’s based.
Expense ratio: 0.45%
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5 Cloud ETFs to Buy Now originally appeared on usnews.com
Update 08/18/23: This story was previously published at an earlier date and has been updated with new information.
