Making its debut on 05/27/2011, smart beta exchange traded fund First Trust Cloud Computing ETF (SKYY) provides investors broad exposure to the Technology ETFs category of the market.
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.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
On the other hand, some investors believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies – popularly known as smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
Even though this space provides many choices to investors – think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility / momentum based weighting – not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $ 5.19 billion, making it one of the largest 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
When considering an ETF’s total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.60%.
It’s 12-month trailing dividend yield comes in at 0.94%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it’s still important for investors to research a fund’s holdings.
For SKYY, it has the heaviest allocation in the Information Technology sector –about 84% of the portfolio –while Telecom and Consumer Discretionary round out the top three.
Looking at individual holdings, Arista Networks, Inc, (ANET) accounts for about 4.07% of total assets, followed by Pure Storage, Inc, (class A) (PSTG) and Alphabet Inc, (class A) (GOOGL).
The top 10 holdings account for about 35.02% of total assets under management.
Performance and Risk
The ETF has lost about -16.80% so far this year and is down about -19.17% in the last one year (as of 02/21/2022). In the past 52-week period, it has traded between $ 85.98 and $ 119.56.
The ETF has a beta of 1 and a standard deviation of 27.34% for the trailing three-year period, making it a medium risk choice in the space. With about 68 holdings, it effectively diversifies company-specific risk.
First Trust Cloud Computing ETF is an excellent option for investors seeking to outperform the Technology ETFs market segment. 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 $ 841.92 million in assets, WisdomTree Cloud Computing ETF has $ 912.61 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.
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
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Arista Networks, Inc. (ANET): Free Stock Analysis Report
Pure Storage, Inc. (PSTG): Free Stock Analysis Report
Global X Cloud Computing ETF (NAIL): ETF Research Reports
WisdomTree Cloud Computing ETF (WCLD): ETF Research Reports
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Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.