Is First Trust Cloud Computing ETF (SKYY) a Strong ETF Right Now?
Smart Beta ETF report for SKYY
Launched on 05/27/2011, the First Trust Cloud Computing ETF (SKYY) is a smart beta exchange traded fund offering broad exposure to the Technology ETFs category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
On the other hand, some investors who 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.
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.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $6.80 billion, making it one of the largest ETFs in the Technology ETFs. SKYY, before fees and expenses, seeks to match the performance of the ISE Cloud Computing Index.
This Index is a modified equal dollar weighted index designed to track the performance of companies actively involved in the cloud computing industry.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.60%.
SKYY's 12-month trailing dividend yield is 0.16%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Information Technology sector - about 85.30% of the portfolio. Telecom and Consumer Discretionary round out the top three.
Taking into account individual holdings, Alphabet Inc. (class A) (GOOGL) accounts for about 4.01% of the fund's total assets, followed by Microsoft Corporation (MSFT) and Oracle Corporation (ORCL).
The top 10 holdings account for about 33.39% of total assets under management.
Performance and Risk
The ETF has added roughly 22.89% so far this year and was up about 38.34% in the last one year (as of 10/20/2021). In the past 52-week period, it has traded between $75.95 and $114.85.
SKYY has a beta of 0.97 and standard deviation of 26.56% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 66 holdings, it effectively diversifies company-specific risk.
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.
WisdomTree Cloud Computing ETF (WCLD) tracks BVP NASDAQ EMERGING CLOUD INDEX and the Global X Cloud Computing ETF (CLOU) tracks INDXX GLOBAL CLOUD COMPUTING INDEX. WisdomTree Cloud Computing ETF has $1.37 billion in assets, Global X Cloud Computing ETF has $1.46 billion. WCLD has an expense ratio of 0.45% and CLOU charges 0.68%.
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
Microsoft Corporation (MSFT): Free Stock Analysis Report
Oracle Corporation (ORCL): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Global X Cloud Computing ETF (CLOU): ETF Research Reports
WisdomTree Cloud Computing ETF (WCLD): ETF Research Reports
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