Market Overview

Don't Forget About The Cloud-Computing ETF

Don't Forget About The Cloud-Computing ETF

A fair number of ETFs tracking the technology sector are not starved for attention and a lot of that has to do with the large allocations to bellwether tech names such as Apple (NASDAQ: AAPL) found within those funds.

However, a previously vilified tech ETF with scant Apple exposure has turned in an impressive 2012 performance. That fund is the First Trust ISE Cloud Computing Index Fund (NASDAQ: SKYY). When SKYY debuted in July 2011, the ETF had its share of critics, some of which questioned the validity of such a narrowly focused ETF.

Out of the gate, SKYY proved those critics correct, tumbling from a debut price of $20 to $16. It appears SKYY is having the last laugh as the fund has jumped 16.5 percent year-to-date. As Street One Financial points out in a research note, SKYY is home to 42 stocks and uses and equal-weight methodology.

Yes, Apple is included in SKYY's lineup, but with a weight of just 2.07 percent, the stock is the ETF's 25th-largest holding. A sampling of the names that figure more prominently in SKYY's lineup include Rackspace (NYSE: RAX), Netflix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOG).

The exposure to cloud plays such as Google and Netflix lends SKYY to being a play on the booming smartphone industry as well.

"Users of smartphones no doubt have figured out that the stability and usability of their ‘apps' depends on network/server conditions, and ‘cloud' based programs such as ‘Google Play' and ‘Netflix Streaming' have become increasingly popular among users," according to Street One.

SKYY has proven detractors wrong on another front, that being its ability to attract assets. The ETF's AUM total has swelled by more than 25 percent in the past year and now stands at almost $76 million.

The asset growth has come quietly as has SKYY's impressive year-to-date performance. Quiet or not, it is worth noting that SKYY has sharply outperformed the Technology Select Sector SPDR (NYSE: XLK), the Vanguard Information Technology ETF (NYSE: VGT) and the iShares Dow Jones U.S. Technology Sector Index Fund (NYSE: IYW) this year. Those ETFs have an average allocation of 19.4 percent to Apple, indicating SKYY has not needed the iPad maker to drive its returns in 2012.

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