Thematic investing: cloud computing

I mentioned in a previous post that one of my coping mechanisms against frivolous spending is to deploy available funds into my portfolio. Today, I’d like to share an occasion where I did just that.

Dipping into thematic investing

Earlier in May 2020 I initiated a small position in a thematic ETF: Global X Cloud Computing (NASDAQ:CLOU). With the COVID-19 pandemic forcing major cities into lockdown, technology became a necessity more than ever to facilitate new norms of living and working. Tech and tech-related stocks, ranging from streaming services to cybersecurity to chipmakers, became a beneficiary of the pandemic.

The technology sector is wide-ranging and can be unfamiliar grounds to many. We could choose to invest in a broad-based tech ETF that offers instant and diverse exposure or select an area that is within our circle of competence.

I am already invested in the digital economy through another ETF, so this position in a cloud computing ETF was meant as a short-term play to scratch my shopping itch.

What is cloud computing?

According to Amazon Web Services, currently the top cloud provider, cloud computing refers to the on-demand delivery of IT services such as computing power, storage, and databases over the Internet. There are 3 main forms of cloud computing to serve different needs, mainly infrastructure as a service (IaaS), platform as a service (PaaS), or software as a service (SaaS). Watch this YouTube video for a quick 101 on cloud computing.

To give an example, Netflix is a company that uses cloud services to scale and operate on the global level. Through the use of two cloud providers, Amazon Web Services and Open Connect, Netflix has improved its streaming technology to allow users worldwide to stream hours and hours of shows from any where in the world on any device.

Cloud computing is not just for large companies but also for end users like us. Apple iCloud, Google Drive, and Dropbox are some examples of cloud storage services that we use. With these cloud-based softwares offering a cost-effective and convenient storage solution, portable hard drives may soon become obsolete.

Personally, I was pretty resistant towards uploading all my data onto an abstract “cloud in the air” that I cannot see or touch like my portable hard drive. But I do recognise the value of cloud computing in the present era of technology and how pervasive it is in many aspects of our lives whether or not we realise it. The examples I gave above is only the tip of the iceberg. Hence, I decided to park a very small amount of funds in CLOU.

Cloud computing ETFs to consider

There were three cloud computing ETFs that I was looking at at the time of my research:

  1. First Trust Cloud Computing ETF (SKYY)
    The first-mover of cloud computing ETFs and largest AUM since 2011, with big tech names such as Alphabet, Oracle, Microsoft, and Alibaba in its top holdings.

    It is the “safer” option with 52.6% return YTD from established tech companies. However, it has comparatively lower YTD returns to the newer players who are have smaller cap companies.

    View latest fund factsheet here.
  2. Global X Cloud Computing ETF (CLOU)
    Incepted in 2019 and consists of companies that derive any form of revenue from cloud computing and associated services. Top holdings include Fastly, Dropbox, and Shopify, as well as data centre REITs such as Digital Realty.

    Out of the three ETFs, CLOU has the highest expense ratio at 0.68%, but has achieved a respectable YTD return of 65%.

    View latest fund factsheet here.
  3. WisdomTree Cloud Computing Fund (WCLD)
    Unlike the previous two ETFs, WCLD is an equal-weighted ETF focused on emerging companies delivering cloud-based softwares to customers. Holdings include Zoom Video Communications, Salesforce.com, and Workday.

    WCLD also has a revenue screen on companies to ensure that constituents that are included attain a minimum growth percentage, which could explain the impressive 97.8% return YTD achieved.

    View latest fund factsheet here.

There is also the Wedbush ETFMG Global Cloud Technology ETF (IVES) but this was not in my comparison list due to its smaller AUM and lower returns.

To hold or to sell?

I debated against accumulating a larger position in CLOU as I am already DCA-ing in another tech ETF. It was an opportunistic purchase and while I do believe that there is certainly still potential for growth in the cloud computing realm, I have sold off my position in CLOU in Dec 2020 at a 30% gain. It is the shortest holding period I ever had at only 7 months!

Nevertheless, I remain vested in the digital economy as part of my core portfolio to ride on this technological wave. Investing in technology is not without its risks, but it has been surprisingly defensive compared to other more “traditional” investments this year.

More importantly, I am happy to cash out my profits on this purchase which would not have been possible if I had spent my money recklessly.

What thematic investment ideas do you have? Feel free to share them below!

Disclaimer: I am no longer vested in any of the above ETFs. Any ideas listed in this post are for information exchange only and not a recommendation to act. Please do your own due diligence.

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