Cloud Computing ETF Options

There are several good ETF options for investing in cloud computing companies. Although there are many tech-related funds that contain relevant companies, we will be covering 3 that are solely focused on this industry. Our ETF's page lists each of these funds as well as the holdings for each. Important metrics, including the Rule of 40, are included with the holdings.

All 3 funds track a specific index which we'll explain for each. This means they are passively managed and are not intended to outperform the index. Generally, this is a good thing because countless studies have concluded only a small portion of active managers beat index benchmarks. Here is a list of the ETF's:

ETF	Index Tracked	Holdings
WisdomTree Cloud Computing Fund (WCLD)	BVP Nasdaq Emerging Cloud Index (EMCLOUD)	67
Global X Cloud Computing ETF (CLOU)	Indxx Global Cloud Computing Index	36
First Trust Cloud Computing ETF	ISE Cloud Computing Index	64

WisdomTree Cloud Computing Fund (WCLD)

By tracking the EMCLOUD index, WCLD is the ETF that has the most focus on cloud computing growth companies. Since inception, the performance of the index has been very impressive, easily beating all the broad-based indexes.

Source: BVP

At Valuations.cloud, our main focus is on these companies simply because of the effects of long-term compounding. By buying the EMCLOUD index through this ETF, you will do very well. Next, we'll briefly discuss how the EMCLOUD index is constructed.

EMCLOUD Index

As stated earlier, EMCLOUD mainly consists of growth companies. In fact, specific growth targets must be met to be included in this index as well as remain in it. There is a reconstitution that happens twice a year (February and August) which is carried out by Bessemer Venture Partners (BVP). At this point, each company gets re-evaluated.

In addition to the growth criteria just mentioned, each company must meet certain standards based on market capitalization, liquidity, and focus on a cloud-related business model. The index also gets rebalanced at this point with each security getting an equal weighting.

Read about the EMCLOUD methodology here.

Global X Cloud Computing ETF (CLOU)

The CLOU ETF differs from WCLD in that large, blue chip companies are included instead of only growth companies. According to Indxx, the organization that created the underlying index, the main goal is to track the cloud computing industry in general. The index consists of only 36 companies (compared to 67 in EMCLOUD). It's also important to note the top companies have a larger weighting.

Established companies generally have slower growth rates and lower valuations. This is reflected in this index. Revenue growth for this index barely exceeds 10% while EMCLOUD is over 23%. Of course, valuation must also be considered. Valuation comparisons are a bit tricky in this case. Since CLOU has a broader scope of what a cloud computing company is, companies like Amazon and Netflix get included. Amazon, also being a large retail company, will have a lower EV/Revenue multiple than a company that's only a software company. Netflix depends on the cloud extensively (not to mention impressive innovation in cloud technology) but is mainly a consumer product. So, part of the problem is that we're not exactly comparing 100% like-kind companies. Which is necessary for metrics like EV/Revenue to be useful. This is even before we get to the fact that many companies in EMCLOUD are not yet profitable.

That being said, there is still considerable overlap between the 2 indexes. Each has a different objective and slightly different definition of what a cloud computing company is. This index may be a good option if you're objective is to invest in more established tech companies at lower valuations.

First Trust Cloud Computing ETF (SKYY)

SKYY, based on the ISE CTA Cloud Computing Index, is designed to track the performance of companies involved in the broad cloud computing industry. As with the others, the classification of what a cloud company is varies somewhat. The companies are selected by Consumer Technology Association (CTA).

Similar to CLOU, the SKYY index differs from BVP Nasdaq Emerging Cloud Index (EMCLOUD) in that large, blue chip companies not only included but also have the highest weighting.

This index has an interesting weighting scheme where companies that are considered to be Infrastructure as a Service (IaaS) or Platform as a Service (PaaS) get a larger weighting than merely Software as a Service (SaaS). The weighing for each security is limited to 4.5% of the index.

Company Performance Comparison

Based on the objectives of each fund, WCLD features the fastest growing companies by revenue. Since profit margins are not the top priority for many rapidly growing companies, the margins are slighly less for WCLD than the others. SKYY, on the other hand, had the best profit margins while still maintaining an impressive 18% revenue growth rate.

CLOU appears a bit sluggish in terms of revenue growth and the overall Rule of 40 benchmark. It is the cheapest, however. The average EV/Revenue is only 5.75 while WCLD is 8.06. As stated earlier, this isn't a great comparison because CLOU includes companies with fundamentally different business models.

SKYY is a very good option if you're seeking to balance risk and returns. The fund includes both growth and established companies. One drawback at the moment, however, is the valuation. With an EV/Revenue of 8.17, it is pretty pricey. But definitely worth keeping an eye on for future buying opportunities.

The table below sums up the attributes of each ETF:

ETF	Revenue Growth	Valuations	Focus	Volatility	Weighting
WisdomTree Cloud Computing Fund (WCLD)	Higher	Higher	Narrow	Higher	Equal
Global X Cloud Computing ETF (CLOU)	Lower	Lower	Broad	Lower	Modified Market Cap
First Trust Cloud Computing ETF	Moderately Higher	Higher	Broad	Somewhat Higher	Modified Market Cap

It is important to note that valuations and other attributes reflect today's environment but may change due to market, economic, or geopolitical conditions.