Advisors in Focus- February 24, 2021 - InvestingChannel

Advisors in Focus- February 24, 2021

What’s rallied harder than your best friend during Rush Week? The 10-year yield. It’s up 28 basis points in two weeks. If this sounds scary, you aren’t alone: Fed Chair Jerome Powell is trying to ease concerns during his two-day testimony on Capitol Hill. Perhaps we can offer Mr. Powell a little cloud cover with today’s ETF spotlight.

First Trust’s Cloud Computing ETF (SKYY) witnessed the biggest surge in interest by financial advisors according to TrackStar. What is it? We’ll tell you. This nifty fund breaks stocks into three categories: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS). First Trust incorporates a unique weighting via a scorecard based on liquidity and tradability. The market cap weighting is based on these rankings with a goal to keep companies weighting below 4.5%. This is to reduce volatility in the ETF in what can be an explosive space.

First Trust had a first-mover advantage as it had the foresight to create a cloud ETF in 2011.  It has $6.84 billion of Assets Under Management making it the largest cloud ETF. Its Average Daily Volume is $43 million, providing liquidity for financial advisors to easily get in and out of the fund. The Expense Ratio sits at 0.60% which is elevated but hardly a reason to eschew a position in the fund.

SKYY Returns have been steady since its inception with an overall return of 436%, a 33% return over the past five years, and 31% over three years. The fund has really sky-rocketed over the past year with a 59% rally as cloud names garnered plenty of interest during the coronavirus pandemic. 

TrackStarIQ Data

Here are some highlights of research surges* this week which includes cloud, entertainment & leisure, and disruptive commerce ETFs:

RANKTOP ETFS – BY ALL FAs (Surge Traffic) This WeekTickerTOP STOCKS- BY ALL FAs (Surge Traffic) This WeekTickerTOP INDUSTRIES BY ALL FAs (Surge Traffic) This Week TOP ETF CATEGORIES BY ALL FAs (Surge Traffic) This Week
1First Trust ISE Cloud Computing Index FundSKYYEbix IncEBIXSemiconductor MemoryHigh Yield Bonds
2Invesco Dynamic Leisure and Entertainment ETFPEJTimken Steel CorpTMSTServices-Miscellaneous Business ServicesEmerging Markets Equities
3Franklin Disruptive Commerce ETFBUYZMicromem Technologies, Inc.MMTIFBuilding MaterialsPrecious Metals
4MicroSectors FANG+ Index -3X Inverse Leveraged ETNFNGDCooper Tire & Rubber CompanyCTBWholesale-Groceries & Related ProductsLatin America Equities
5Vanguard Intermediate-Term Treasury ETFVGITOshkosh Truck CorpOSKTools & AccessoriesTransportation Equities
6iShares U.S. Regional Banks ETFIATGreen For Energy, Inc.GRGGInvestment adviceMid Cap Growth Equities
7iShares MSCI United Kingdom ETFEWUCoastal Carolina Bancshares IncCCNBUtilities – RenewableForeign Small & Mid Cap Equities
8iShares U.S. Financial Services ETFIYGZoned Properties, Inc.ZDPYWholesale-Machinery, Equipment & SuppliesMortgage Backed Securities
9VelocityShares 3x Long Natural GasUGAZGaslog LtdGLOGFarm & Heavy Construction MachineryJapan Equities
10iShares Russell Midcap ETFIWRPeople’s United FinlPBCTScientific & Technical InstrumentsMLPs
11AAM S&P Emerging Markets High Dividend Value ETFEEMDBtrs Holdings Inc WTBTRSWUtilities – Regulated WaterConsumer Staples Equities
12iShares 1-3 Year Treasury Bond ETFSHYCloud Computing ETF FTSKYYLumber & Wood ProductionNational Munis
13Global X FinTech Thematic ETFFINXWestern Pacific Minerals Ltd.WPMLFMetal FabricationInflation-Protected Bonds
14Direxion Daily CSI China Internet Index Bull 2x SharesCWEBSOW GOOD INCSOWGFood DistributionReal Estate
15ETFMG Travel Tech ETFAWAYAstellas Pharma, Inc.ALPMYMiscellaneous Manufacturing IndustriesCommodities
16Invesco Financial Preferred ETFPGFRodgers Silicon Valley Acquisition CorpRSVACopperHealth & Biotech Equities
17Vanguard FTSE Emerging Markets ETFVWOTitan Machinery IncTITNMedia – DiversifiedAlternative Energy Equities
18iShares MSCI Brazil ETFEWZVinco Ventures IncBBIGDrug Manufacturers – GeneralMetals
19FlexShares STOXX US ESG Impact Index FundESGReto Eco-Solutions IncRETODepartment StoresPreferred Stock/Convertible Bonds
20Direxion Daily Energy Bull 2X SharesERXBrookmount Explorations, Inc.BMXITravel ServicesTotal Bond Market

Let’s do a deep dive into some of the constituents in the SKYY ETF. The largest holding is an ADR, Kingsoft Cloud (KC). This is a China cloud play that flies under the radar because of its $3800+ price tag for the stock. The company offers public cloud services to gaming, video, AI, e-commerce, education, and mobile internet. It has a wide class of customers that includes financial services, governments, and healthcare businesses. It was recently named as a Top 10 pick by billionaire investor Paul Tudor Jones based around the long growth runway as Chinese companies move onto the cloud. KC’s weighting is approximately 5.2% of the fund which does run above the 4.5% cap.

The second-largest weighting in the ETF belongs to MicroStrategy (MSTR). MSTR is getting a lot of attention because of its successful bet on Bitcoin. Last month MSTR announced bitcoin holdings would be a second strategy to its cloud analytics business. Shares of MSTR were trading around $140 at the end of the summer but it has seen its shares rocket to $1300 as a proxy on bitcoin. On the contrary, the stock has been slammed down to the $700 level as bitcoin bounces all over the place. The company will run a $600 million convertible offering in order to purchase more bitcoin. CEO Michael Saylor believes that Bitcoin’s market value could rise to $100 trillion and that accumulation of the currency will be a cornerstone of the company’s strategy. Bottom line: caveat emptor. 

The rest of the Top 10 holdings are your typical tech constituents with Alphabet (GOOG), MongoDB (MDB), Microsoft (MSFT), Oracle (ORCL– which was a centerpiece of this weekend’s Barrons), Amazon (AMZN), VMWare (VMW), and Alibaba (BABA). The Top 10 weightings make up 37.5% of the ETF, highlighting the well-diversified nature.

The Bengali poet Rabindranath Tagore wrote, “Clouds come floating into my life, no longer to carry rain or usher storm, but to add color to my sunset sky.” Cloud computing names added the color green to money manager portfolios the past couple of years. The escalation in searches during heightened volatility in the markets suggests this remains a key area for market participants to observe. 

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