Exposure To Conglomerates Matters
CLOU also has a provision where it may hold, on a capped basis, stocks that generate at least $500 million in revenue from public cloud infrastructure (but that might not meet that 50% revenue threshold).
Essentially, these are the same kinds of companies that SKYY defines as “technology conglomerates,” stocks like Amazon or Microsoft that are giants in the cloud computing space, but that don't count cloud computing as a primary revenue generator.
TCLD may hold these conglomerates as well, allowing the inclusion of stocks whose revenues are among the top 10 globally in cloud systems/services.
However, the difference is that CLOU limits individual weights of these stocks to 2%, and total index exposure to 10%; TCLD can allocate up to 20% of its index to these broad tech giants.
Vastly Different Under The Hood
As a result, CLOU's securities list looks very different than that of SKYY or TCLD, which share a number of similar names in their top 10 holdings:
|Top 10 Holdings For Cloud Computing ETFs|
|Zynga Inc. Class A||6.93%||Microsoft Corporation||4.84%||Shopify, Inc. Class A||6.09%|
|VMware, Inc. Class A||5.75%||Amazon.com, Inc.||4.83%||Zscaler, Inc.||5.41%|
|Facebook, Inc. Class A||5.53%||Equinix, Inc.||4.79%||Paycom Software, Inc.||5.27%|
|Netflix, Inc.||5.33%||Splunk Inc.||4.61%||Coupa Software, Inc.||5.13%|
|Equinix, Inc.||4.88%||Digital Realty Trust, Inc.||4.49%||Workday, Inc. Class A||4.70%|
|SAP SE Sponsored ADR||4.68%||Cisco Systems, Inc.||4.46%||Twilio, Inc. Class A||4.66%|
|Amazon.com, Inc.||4.68%||NetApp, Inc.||4.46%||Paylocity Holding Corp.||4.42%|
|Akamai Technologies, Inc.||4.63%||Oracle Corporation||4.44%||Proofpoint, Inc.||4.41%|
|Cisco Systems, Inc.||4.60%||Red Hat, Inc.||4.37%||Xero Limited||4.11%|
Source: ETF.com. Data as of May 9, 2019
For example, mobile gaming giant Zynga is the top holding in SKYY, at 7%, but the stock doesn't appear at all in CLOU. Meanwhile, TCLD's top holding, Microsoft, at 5%, gets only a 2% holding in CLOU.
(To see which ETFs own what individual stocks, use the ETF.com Stock Finder tool.)
This means that, despite these three ETFs having fairly small portfolios—all three funds hold fewer than 50 names—there is surprisingly little overlap in their holdings. A whopping 94% of CLOU's portfolio differs from TCLD, while 95% differs from SKYY.
This is a classic example of why investors should always look under the hood, especially for thematic funds. Even in a narrow sector, vast discrepancies in holdings—and performance—can result.
Contact Lara Crigger at [email protected]