Launched on 05/27/2011, the first Cloud Computing Trust ETF (The sky – Free Report) is a smart demo exchange traded fund that offers broad exposure to the technology ETF class of the market.
What are Smart Beta ETFs?
Market capitalization weighted indices were created to reflect a market, or a specific market segment, and the ETF industry has traditionally been dominated by products based on this strategy.
Market capitalization weighted indices work great for investors who believe in the efficiency of the market. They provide a low-cost, convenient and transparent way to replicate market returns.
But, there are some investors who prefer to invest in smart demo funds; These funds follow non-capital weighted strategies and are a solid choice for those who prefer to pick large stocks in order to beat the market.
Non-capital weighted indices attempt to select stocks that have a better chance of performing risk and return, which are based on specific fundamental characteristics, or a combination of these other characteristics.
This field offers many different investment options, such as the simplest Equal Weighting, Fundamental Weighting and Volatility/Momentum Weighting based methodologies; However, not all of these strategies can achieve superior results.
Fund sponsor and index
Managed by First Trust Advisors, SKYY has raised over $2.59 billion, making it one of the largest technology ETFs. This private fund seeks to match the performance of the ISE Cloud Computing Index before fees and expenses.
The ISE Cloud Computing Index is a market value-weighted adjusted index designed to track the performance of companies actively participating in the cloud computing industry.
Cost and other expenses
For ETF investors, expense ratios are an important factor when considering a fund’s return; In the long run, cheaper funds have the potential to outperform their more expensive cousins if all other things remain the same.
The ETF’s annual operating expense is 0.60%, which puts it on par with most similar products in the field.
The 12-month delayed dividend yield comes in at 0.23%.
Sector exposure and holdings
Although ETFs offer diversified exposure that reduces the risk of individual stocks, investors should also consider the actual holdings within the fund. Fortunately, most ETFs are very transparent products that reveal their holdings on a daily basis.
For SKYY, it has the largest allocation in the IT sector – around 85.60% of the portfolio – while the Telecom and Consumer Appreciation sectors round out the top three.
Looking at the individual holdings, Mongodb, Inc. (mdb – Free Report) accounting for about 4% of total assets, followed by Pure Storage, Inc. (Class A) (PSTG – Free Report) and Arista Networks, Inc. (network – Free report).
SKYY’s top 10 holdings account for approximately 34.21% of its total assets under management.
performance and risk
The ETF has lost about -44.19% so far this year and is down about -45.26% in the last year (as of 01/02/2023). Over the past 52-week period, it has traded between $55.50 and $103.46.
The fund has a beta of 1.02 and a standard deviation of 35.14% for the subsequent three-year period, making SKYY a mid-risk option in this particular space. With around 71 holdings, it effectively diversifies the risk profile of the company.
alternatives
The First Trust Cloud Computing ETF is an excellent choice for investors looking to outperform the technology ETFs segment of the market. There are other ETFs in the space that investors can consider as well.
X Global Cloud Computing ETF (Claw – FREE REPORT (tracks INDXX GLOBAL CLOUD COMPUTING INDEX and WisdomTree Cloud Computing ETF)wcld – FREE REPORT) BVP tracks NASDAQ EMERGING CLOUD INDEX. The Global X Cloud Computing ETF has $540.05 million in assets and the WisdomTree Cloud Computing ETF has $573.08 million. CLOU has an expense ratio of 0.68% and a WCLD fee of 0.45%.
Investors looking for cheaper and less risky options should consider traditional market capitalization-weighted ETFs that aim to match the returns of technology ETFs.
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To learn more about this product and other ETFs, find products that align with your investment goals and read articles about the latest developments in the ETF investing world, please visit Zacks ETF Center.