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

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Designed to provide broad exposure to the Technology ETFs category of the market, the First Trust Cloud Computing ETF (SKYY - Free Report) is a smart beta exchange traded fund launched on 05/27/2011.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

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.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

Managed by First Trust Advisors, SKYY has amassed assets over $2.68 billion, making it one of the larger ETFs in the Technology ETFs. SKYY, before fees and expenses, 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

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

SKYY's 12-month trailing dividend yield is 0.20%.

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 87.60% of the portfolio --while Telecom and Consumer Discretionary round out the top three.

Looking at individual holdings, Mongodb, Inc. (MDB - Free Report) accounts for about 4.06% of total assets, followed by Oracle Corporation (ORCL - Free Report) and Amazon.com, Inc. (AMZN - Free Report) .

The top 10 holdings account for about 36.07% of total assets under management.

Performance and Risk

The ETF has gained about 11.47% so far this year and is down about -19.76% in the last one year (as of 03/08/2023). In the past 52-week period, it has traded between $55.50 and $93.73.

SKYY has a beta of 1.05 and standard deviation of 35.51% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 68 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 $571.25 million in assets, WisdomTree Cloud Computing ETF has $660.47 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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