Battle Of Cloud Computing ETFs

July 01, 2019

From a sector perspective, software and information technology services represent only 71% of SKYY versus 83% of CLOU. Here’s a look at SKYY’s portfolio:

 

 

These allocations tilt SKYY toward larger cap names versus competing CLOU. SKYY has a weighted average market capitalization of $206 billion. CLOU’s average market cap sits at $71 billion.

SKYY is also a broader portfolio in number of holdings—it owns roughly twice as many stocks as CLOU does.

What has been perhaps more notably different about them in the past two months since CLOU’s inception is their performance. Check out CLOU’s outperformance:  

 

Chart courtesy of StockCharts.com

 

Under The Surface

In a year when technology is the best-performing S&P 500 sector, rallying almost 26%, underperformance in a tech-segment ETF is a little hard to stomach for some investors.

The divergence in performance is directly tied to underlying holdings. It’s SaaS companies that are shining the brightest, and CLOU has a stronger focus on them.

Consider that SKYY’s top holdings, Oracle and Amazon, are up about 3-4% in the past two months (since CLOU’s inception); MongoDB is up 5%; CenturyLink is in the red. Microsoft is up 11%. That’s the fund’s top five holdings in terms of allocation.

 

[Use our stock finder tool to find an ETF’s allocation to a certain stock.]

 

Meanwhile, CLOU’s top holding, the SaaS company Anaplan (PLAN), is up 40% in the past two months. Coupa Software (COUP) is up 32%; Shopify (SHOP) is up 38%. Cloud-based security company Zscaler (ZS) is up 15.5%. These are big returns, outsized relative to the broader tech sector, driving CLOU’s performance.  

There’s no question investors are paying a little more for that outperformance. CLOU costs 0.68% in expense ratio, or $68 per $10,000 invested, versus 0.60% for SKYY. That’s a price tag 13% higher than its main competitor.

But so far, investors seem undeterred by that cost difference, pouring assets into CLOU in an effort to capture the hot performance of the software industry this year, and making CLOU one of the most successful thematic ETF launches we’ve seen in a while.

Contact Cinthia Murphy at [email protected]

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