News

Designed to provide broad exposure to the Technology ETFs category of the market, the First Trust Cloud Computing ETF (SKYY) is a smart beta exchange traded fund launched on 05/27/2011.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

Managed by First Trust Advisors, SKYY has amassed assets over $2.90 billion, making it one of the larger ETFs in the Technology ETFs. Before fees and expenses, SKYY seeks to match the performance of the ISE Cloud Computing Index.

The ISE Cloud Computing Index is a modified market capitalization weighted index designed to track the performance of companies actively involved in the cloud computing industry.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.60%.

SKYY's 12-month trailing dividend yield is 0%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

For SKYY, it has heaviest allocation in the Information Technology sector --about 85% of the portfolio --while Telecom and Consumer Discretionary round out the top three.

Looking at individual holdings, Alphabet Inc. (class A) (GOOGL) accounts for about 4.94% of total assets, followed by Pure Storage, Inc. (class A) (PSTG) and Oracle Corporation (ORCL).

The top 10 holdings account for about 38.74% of total assets under management.

Performance and Risk

So far this year, SKYY return is roughly 6.33%, and it's up approximately 17.76% in the last one year (as of 07/26/2024). During this past 52-week period, the fund has traded between $70.93 and $97.55.

SKYY has a beta of 1.08 and standard deviation of 31.47% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 66 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Cloud Computing ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Global X Cloud Computing ETF (CLOU) tracks INDXX GLOBAL CLOUD COMPUTING INDEX and the WisdomTree Cloud Computing ETF (WCLD) tracks BVP NASDAQ EMERGING CLOUD INDEX. Global X Cloud Computing ETF has $399.63 million in assets, WisdomTree Cloud Computing ETF has $470.92 million. CLOU has an expense ratio of 0.68% and WCLD charges 0.45%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Technology ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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First Trust Cloud Computing ETF (SKYY): ETF Research Reports

Oracle Corporation (ORCL) : Free Stock Analysis Report

Alphabet Inc. (GOOGL) : Free Stock Analysis Report

Pure Storage, Inc. (PSTG) : Free Stock Analysis Report

Global X Cloud Computing ETF (CLOU): ETF Research Reports

WisdomTree Cloud Computing ETF (WCLD): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.