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SKYY, ARKW, CLOU, and WCLD are the best cloud computing ETFs for 2022.
Below, we will discuss their differences along a number of axes, such as performance, size, and the area of cloud computing that the fund focuses on.
Best Cloud Computing ETFs: Background
Before we get into the best cloud computing ETFs, let’s first define the term.
Cloud computing is the on-demand delivery of computing services over the internet with pay-as-you-go pricing. These services include storage, servers, databases, networking, software, analytics, and intelligence.
Companies are switching from ‘on-site’ to the cloud to cut costs and scale faster while simultaneously improving performance, productivity, and reliability.
Gartner predicts public cloud services spending to increase by 23% in 2021 to $332 billion. The number is expected to reach nearly $400 billion in 2022.
Owning a cloud computing ETFputs your portfolio on the right side of this trend.
Best Cloud Computing ETFs: The Different Types
The expanding cloud market allows for companies to specialize in specific cloud services, which generally fall into three categories:
- Infrastructure-as-a-Service (IaaS): cloud service providers like Amazon (AMZN), Microsoft (MSFT), and Google (GOOG) offer IT infrastructure over the internet on a pay-as-you-go basis. Examples include AWS, Azure, and Google Cloud.
- Platform-as-a-Service (PaaS): an on-demand environment for developing, testing, delivering, and managing software applications. The IaaS providers are also the top PaaS companies, but other examples include Oracle (ORCL), IBM (IBM), and Twilio (TWLO)
- Software-as-a-Service (SaaS): delivery of software applications over the internet. Examples include Salesforce (CRM), Zoom (ZM), Snowflake (SNOW), and Palantir (PLTR).
Next, we’ll see why it’s advantageous to have exposure to different cloud companies via an exchange-traded fund.
Best Cloud Computing ETFs
#1. First Trust Cloud Computing ETF (SKYY)
- Performance over 1-Year: -32%
- Expense Ratio: 0.60%
- Assets Under Management: $3.4 billion
The First Trust Cloud Computing ETF (SKYY) tracks a modified equal-weighted index that follows companies involved in the cloud computing industry.
It first launched in 2011 and is the largest thematic ETF that follows the cloud market.
SKYY is a relatively balanced fund in terms of holdings’ allocation and investment objective. It invests across all areas of cloud computing, and no single holding receives more than a 4.5% allocation.
First Trust uses its propriety “Cloud Score Weighting” methodology to determine these individual security weights. The fund is reconstituted and rebalanced quarterly.
Generally speaking, this decade-old ETF provides broad exposure to the expanding cloud industry.
SKYY Top Holdings:
- Pure Storage (PSTG) 3.90%
- Alibaba Group (BABA) 3.85%
- International Business Machines (IBM) 3.56%
- MongoDB (MDB) 3.54%
- Arista Networks (ANET) 3.52%
#2. ARK Next Generation Internet ETF (ARKW)
- Performance over 1-Year: -59%
- Expense Ratio: 0.83%
- Assets Under Management: $1.6 billion
The ARK Next Generation Internet ETF (ARKW) focuses on companies that rely on or stand to benefit from the increased use of shared technology, infrastructure and services, internet-based products and services, new payment methods, big data, the internet of things, and social distribution of media.
Cloud computing companies make up just 12.5% of ARKW, so this isn’t a pure-play cloud ETF by any means. But the ‘next generation internet’ won’t happen without cloud computing.
For example, Tesla uses the cloud to collect data on its artificial intelligence and autonomous driving technology. Access to driver data is Tesla’s advantage over competitors like Ford, which is made possible by cloud computing.
Tesla would be years behind where it is today if ‘on-premise’ software updates and data collection were required.
Back to ARKW: this ETF is all over the place, but its holdings “stand to benefit” most from more connectivity and shared technology.
These companies might not provide cloud computing services, but they’re leveraging the cloud better than their competition.
ARKW Top Holdings:
- Roku (ROKU) 8.59%
- Tesla (TSLA) 7.79%
- Zoom Video Communications (ZM) 7.78%
- Coinbase (COIN) 6.53%
- Grayscale Bitcoin Trust (GBTC) 6.35%
ARKW is one of six active ARK ETFs offered by Cathie Wood and her team at ARK Invest.
#3. Global X Cloud Computing ETF (CLOU)
- Performance over 1-Year: -36%
- Expense Ratio: 0.68%
- Assets Under Management: $667 million
The Global X Cloud Computing ETF invests in companies whose principal business is in offering computing SaaS, PaaS, and IaaS managed server storage space and data center REITs, and/or cloud and edge computing infrastructure hardware.
Global X believes investors should choose CLOU for its high growth potential in a market with structural tailwinds and the fund’s unconstrained sector and geographical approach.
One of CLOU’s top holding is Zscaler (ZS), a top cybersecurity stock in the market.
Zscaler offers the only ‘zero trust platform’ that securely connects any user, device, and app over any network.
Zero trust is a network security concept requiring all network users to be authenticated, authorized, and continuously validated before gaining access to apps and data.
This model prevents hackers from being able to do anything once they get inside a given network.
Let’s look at the other top holdings in the Global X Cloud Computing ETF.
CLOU Top Holdings:
- DigitalOcean Holdings (DOCN) 4.95%
- Dropbox (DBX) 4.92%
- Netflix (NFLX) 4.90%
- Paycom Software (PAYC) 4.81%
- Zoom Video Communications (ZM) 4.72%
#4. WisdomTree Cloud Computing ETF (WCLD)
- Performance over 1-Year: -45%
- Expense Ratio: 0.45%
- Assets Under Management: $708 million
The WisdomTree Cloud Computing Fund provides “pure play exposure to fast-growing, cloud-based businesses and offers investors a compelling, long-term opportunity in an exciting technology segment.”
The primary holdings are companies you may not be familiar with, such as Anaplan, Tenable, and Sprout. However, allocations are pretty balanced across the entire fund.
WCLD’s 77 holdings have similar weights between 0.5% and 2.2%.
They are predominantly emerging SaaS companies with high growth potential and little profits (for now).
WCLD Top Holdings:
- Definitive Healthcare (DH) 2.07%
- 2U (TWOU) 1.99%
- CrowdStrike (CRWD) 1.98%
- Sprout Social (SPT) 1.95%
- Qualys (QLYS) 1.93%
Alternatives to the Best Cloud Computing ETFs
The ETFs in this article are predominantly technology, software, and growth stocks. You may already have exposure to these holdings in other ETFs that track the benchmark indices.
FAAMG stocks like Amazon and Microsoft already control more than half of the IaaS market and dominate the PaaS market.
Consider buying shares of Google if you think it can close the gap with Amazon and Microsoft. Google controls just 9% of the IaaS market.
However, fighting Big Tech’s momentum may be futile. The public cloud is currently the most lucrative opportunity for these three companies and will continue to be for some time.
Best Cloud Computing ETF: The Risks
We don’t recommend trying to time the market, but many of the companies in this article have gone on historic runs. There’s a good chance you’re buying in at all-time highs.
That’s not to say they won’t continue to appreciate, but over-extended valuations are certainly a risk to consider.
Also, some of the top holdings in these ETFs are not pure-play cloud stocks. Amazon makes movies, Microsoft sells tablets, and Google develops self-driving cars.
Additionally, this is still a nascent market, making it difficult to value some of the companies in these ETFs.
Last, holdings are subject to change. You could buy into ARKW because you like Twitter, Grayscale, and Shopify, only to watch the firm cut or significantly reduce their weights tomorrow.
Best Cloud Computing ETF: FAQs
What is the best cloud ETF?
Here are the best cloud ETFs:
- First Trust Cloud Computing ETF (SKYY)
- ARK Next Generation Internet ETF (ARKW)
- Global X Cloud Computing ETF (CLOU)
- WisdomTree Cloud Computing ETF (WCLD)
Which ETF does Warren Buffet recommend?
Warren Buffett recommends owning low-cost ETFs that follow the benchmark, like the Vanguard S&P 500 ETF (VOO), SPDR Portfolio S&P 500 ETF (SPLG), or the SPDR S&P 500 ETF (SPY). Warren Buffett is a value investor that prioritizes time in the market over timing the market.
Is SKYY a good ETF?
The SKYY is a good ETF that provides exposure to the cloud computing industry. Its top holdings include the main Infrastructure-as-a-Service companies like Amazon (AMZN), Microsoft (MSFT), and Google (GOOG).
Which is better, WCLD or CLOU?
WCLD has more small to mid-cap companies than CLOU, which consists of companies like Zscaler (ZS), Zoom (ZM), and Shopify (SHOP).
What is the best 5G ETF?
Here are the seven best 5G ETFs to buy in 2022:
- Global X Internet of Things ETF (SNSR)
- Pacer Benchmark Data and Infrastructure ETF (SRVR)
- First Trust IndXX NextG ETF (NXTG)
- iShares US Telecommunications ETF (IYZ)
- Vanguard Communication Services (VOX)
- Defiance Next Gen Connectivity ETF (FIVG)
- ARK Next Generation Internet ETF (ARKW)
Bottom Line: Best Cloud Computing ETFs
The best cloud computing ETF for your portfolio depends on the type of cloud exposure you’re seeking, your price sensitivity, and the construction of your current portfolio.
But for the vast majority of cloud-curious investors, the First Trust Cloud Computing ETF (SKYY) is the best option.
This article is for informational purposes only. It is not intended to be investment advice. Check out our editorial principles and rating methodology for public equities to learn more about how we chose the Best Cloud Computing ETFs.
This article was updated on July 23rd, 2022 to reflect the changes in performance and characteristics of each fund. The Simplify Volt Cloud and Cybersecurity Disruption ETF (VCLO) was removed from our list on this update.