Should You Invest in the First Trust Cloud Computing ETF (SKYY)? – November 24, 2022

Designed to provide broad exposure to the Technology – Cloud Computing segment of the equity market, the First Trust Cloud Computing ETF (SKYY: Free Report) is a passively managed exchange traded fund launched on 05/27/2011.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long-term investors.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Technology – Cloud Computing is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 9, placing it in the bottom 44%.

Index Details:

The fund is sponsored by First Trust Advisors. It has amassed assets over $2.91 billion, making it one of the larger ETFs attempting to match the performance of the Technology – Cloud Computing segment of the equity market. SKYY seeks to match the performance of the ISE Cloud Computing Index before fees and expenses.

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.

Costs:

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.60%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.31%.

Sector Exposure and Top Holdings

It is important to delve into an ETF’s holdings before investing despite the many upsides to these types 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 the heaviest allocation in the Information Technology sector–about 85.60% of the portfolio. Telecom and Consumer Discretionary round out the top three.

Looking at individual holdings, Mongodb, Inc. (MDB: Free Report) accounts for about 4% of total assets, followed by Pure Storage, Inc. (class A) (PSTG: Free Report) and Arista Networks, Inc. (ANET: Free Report).

The top 10 holdings account for about 34.21% of total assets under management.

Performance and Risk:

Year-to-date, the First Trust Cloud Computing ETF has lost about -40.13% so far, and is down about -42.68% over the last 12 months (as of 11/24/2022). SKYY has traded between $55.97 and $111.27 in this past 52-week period.

The ETF has a beta of 1.05 and standard deviation of 34.69% for the trailing three-year period, making it a medium risk choice in the space. With about 71 holdings, it effectively diversifies company-specific risk.

Alternatives:

First Trust Cloud Computing ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, SKYY is an excellent option for investors seeking exposure to the Technology ETFs segment of the market. There are other additional ETFs in the space that 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 $570.93 million in assets, WisdomTree Cloud Computing ETF has $594.64 million. CLOU has an expense ratio of 0.68% and WCLD charges 0.45%.

Bottom Line:

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on the latest developments in the ETF investing universe, please visit Zacks ETF Center.

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