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Is First Trust Cloud Computing ETF (SKYY) a Strong ETF Right Now?

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The First Trust Cloud Computing ETF (SKYY - Free Report) made its debut on 05/27/2011, and is a smart beta exchange traded fund that provides 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.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

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.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Because the fund has amassed over $3.65 billion, this makes it one of the larger ETFs in the Technology ETFs. SKYY is managed by First Trust Advisors. Before fees and expenses, this particular fund 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

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Operating expenses on an annual basis are 0.60% for this ETF, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

For SKYY, it has 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, Oracle Corporation (ORCL - Free Report) accounts for about 4.23% of total assets, followed by Arista Networks, Inc. (ANET - Free Report) and Lumen Technologies, Inc. (LUMN - Free Report) .

Its top 10 holdings account for approximately 36.82% of SKYY's total assets under management.

Performance and Risk

The ETF has added about 41.05% so far this year and is up roughly 53.79% in the last one year (as of 11/26/2024). In the past 52-week period, it has traded between $80.15 and $123.66.

SKYY has a beta of 1.08 and standard deviation of 31.79% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 64 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 - Free Report) tracks INDXX GLOBAL CLOUD COMPUTING INDEX and the WisdomTree Cloud Computing ETF (WCLD - Free Report) tracks BVP NASDAQ EMERGING CLOUD INDEX. Global X Cloud Computing ETF has $382.96 million in assets, WisdomTree Cloud Computing ETF has $503.01 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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