In 2020, the technology sector was hot, but many cloud computing equities were simply scintillating, a theme that's still in its early innings.
What Happened: For investors that like the idea of cloud exposure, but don't like the idea of stock picking in this segment, there are three dedicated exchange traded funds to consider, all of which delivered impressive 2020 performances.
To put those showings into context, the worst-performing cloud ETF gained almost 58%, but in a case of differences between ETFs that appear similar proving meaningful, the WisdomTree Cloud Computing Fund WCLCD gained almost 110% last year. That's good for one of the best returns among all non-leveraged ETFs, thematic or otherwise.
Why It's Important: WCLD, which debuted in September 2019, tracks the BVP Nasdaq Emerging Cloud Index. The “BVP” stands for Bessemer Venture Partners, a firm with expertise in cloud investing and public cloud benchmarks.
“Technology is increasingly driving global GDP and software is the fastest growing segment of technology,” write Byron Deeter and Mary D’Onofrio of Bessemer.
“Within software, the growth of cloud is moving at an impressive clip; it’s becoming abundantly clear that cloud computing will become a majority of enterprise software by 2025, and the vast majority of all software by 2030. Simply put, cloud computing is increasingly consuming software, hardware, and services and is therefore the most exciting mega-trend in technology, making it one of the most compelling themes impacting global GDP over the coming years.”
As WisdomTree points out, Bessemer coined a new investing acronym, one that could rival or supplant FAANG: MT SAAS.
That's for Microsoft MSFT, Twilio TWLO, Salesforce CRM, Amazon AMZN, Adobe ADBE and Shopify SHOP.
In alphabetical order, Adobe, the Dow component Salesforce, Shopify and Twilio are members of the WCLD roster.
What's Next: The inclusion of those names in WCLD is relevant for myriad reasons, including revenue growth. To enter WCLD's index, new components must have revenue growth of 15% in each of the prior two fiscal years and to stay in the benchmark, a company must have a minimum of 7% top line growth in one of the past two years.
And no, lacking Amazon and Microsoft exposure doesn't harm WCLD's long-term prospects.
“MT SAAS is a mix of application (CRM, ADBE, SHOP) and infrastructure (MSFT, TWLO, AMZN) companies, incumbent giants (MSFT, AMZN) and hypergrowth challengers (CRM, ADBE, SHOP, TWLO), all sharing the same characteristics of cloud delivery models, cloud business models, high growth, and compelling long-term margin potential,” notes Bessemer.
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