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:
| RANK | TOP ETFS – BY ALL FAs (Surge Traffic) This Week | Ticker | TOP STOCKS- BY ALL FAs (Surge Traffic) This Week | Ticker | TOP INDUSTRIES BY ALL FAs (Surge Traffic) This Week | TOP ETF CATEGORIES BY ALL FAs (Surge Traffic) This Week |
|---|---|---|---|---|---|---|
| 1 | First Trust ISE Cloud Computing Index Fund | SKYY | Ebix Inc | EBIX | Semiconductor Memory | High Yield Bonds |
| 2 | Invesco Dynamic Leisure and Entertainment ETF | PEJ | Timken Steel Corp | TMST | Services-Miscellaneous Business Services | Emerging Markets Equities |
| 3 | Franklin Disruptive Commerce ETF | BUYZ | Micromem Technologies, Inc. | MMTIF | Building Materials | Precious Metals |
| 4 | MicroSectors FANG+ Index -3X Inverse Leveraged ETN | FNGD | Cooper Tire & Rubber Company | CTB | Wholesale-Groceries & Related Products | Latin America Equities |
| 5 | Vanguard Intermediate-Term Treasury ETF | VGIT | Oshkosh Truck Corp | OSK | Tools & Accessories | Transportation Equities |
| 6 | iShares U.S. Regional Banks ETF | IAT | Green For Energy, Inc. | GRGG | Investment advice | Mid Cap Growth Equities |
| 7 | iShares MSCI United Kingdom ETF | EWU | Coastal Carolina Bancshares Inc | CCNB | Utilities – Renewable | Foreign Small & Mid Cap Equities |
| 8 | iShares U.S. Financial Services ETF | IYG | Zoned Properties, Inc. | ZDPY | Wholesale-Machinery, Equipment & Supplies | Mortgage Backed Securities |
| 9 | VelocityShares 3x Long Natural Gas | UGAZ | Gaslog Ltd | GLOG | Farm & Heavy Construction Machinery | Japan Equities |
| 10 | iShares Russell Midcap ETF | IWR | People’s United Finl | PBCT | Scientific & Technical Instruments | MLPs |
| 11 | AAM S&P Emerging Markets High Dividend Value ETF | EEMD | Btrs Holdings Inc WT | BTRSW | Utilities – Regulated Water | Consumer Staples Equities |
| 12 | iShares 1-3 Year Treasury Bond ETF | SHY | Cloud Computing ETF FT | SKYY | Lumber & Wood Production | National Munis |
| 13 | Global X FinTech Thematic ETF | FINX | Western Pacific Minerals Ltd. | WPMLF | Metal Fabrication | Inflation-Protected Bonds |
| 14 | Direxion Daily CSI China Internet Index Bull 2x Shares | CWEB | SOW GOOD INC | SOWG | Food Distribution | Real Estate |
| 15 | ETFMG Travel Tech ETF | AWAY | Astellas Pharma, Inc. | ALPMY | Miscellaneous Manufacturing Industries | Commodities |
| 16 | Invesco Financial Preferred ETF | PGF | Rodgers Silicon Valley Acquisition Corp | RSVA | Copper | Health & Biotech Equities |
| 17 | Vanguard FTSE Emerging Markets ETF | VWO | Titan Machinery Inc | TITN | Media – Diversified | Alternative Energy Equities |
| 18 | iShares MSCI Brazil ETF | EWZ | Vinco Ventures Inc | BBIG | Drug Manufacturers – General | Metals |
| 19 | FlexShares STOXX US ESG Impact Index Fund | ESG | Reto Eco-Solutions Inc | RETO | Department Stores | Preferred Stock/Convertible Bonds |
| 20 | Direxion Daily Energy Bull 2X Shares | ERX | Brookmount Explorations, Inc. | BMXI | Travel Services | Total 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.