Fund Watch

Charting the outperformance of the WisdomTree Cloud Computing Fund

The WisdomTree Cloud Computing Fund [WCLD] ended the second quarter up 62.4% at $38.96. The fund’s solid performance marks a strong recovery from the first quarter’s decline of 6.1%.

Furthermore, the WisdomTree Cloud Computing Fund gained a massive 52.5% in the first half of 2020 to become what ETF.com called “the best-performing non-leveraged ETF outside of volatility products”.

While technology has undoubtedly been a primary beneficiary of the work-from-home trend, cloud computing is proving to be one of the most successful investment themes of the year.

52.5%

WisdomTree Cloud Computing Fund's returns in first half of 2020

  

Best in show

Despite being one of the newest members of the cloud computing ETF club, according to Benzinga, the WisdomTree Cloud Computing Fund has fast become one of the top-performing.

So far this year, the fund has outpaced two of its most prominent peers — First Trust Cloud Computing ETF [SKYY] and the Global X Cloud Computing ETF [CLOU]. The former returned 23.6% and the latter 36% in the first half of the year.

36%

Global X Cloud Computing ETF's returns in first half of 2020

  

The WisdomTree Cloud Computing Fund even outpaced the world’s biggest ETF (by assets) the SPDR S&P 500 ETF [SPY], which is down 3.2% in the same period.

The fund is also a top-performing fund in Morningstar’s US technology category, outperforming its peers by an average 3,609 basis points for the year to 23 June, according to Jeremy Schwartz, executive vice president and global head of research WisdomTree.

 

Skyward velocity creates mass appeal

The growth in cloud computing companies has prompted a shift in the holdings of benchmark indices such as the S&P 500 and Nasdaq. For example, DocuSign [DOCU], Zoom [ZM] and DexCom [DXCM] were added to the Nasdaq this year, while ServiceNow [NOW] and Paycom [PAYC] were added to the S&P 500 late last year and early 2020, respectively.

Despite the shift, both benchmarks have less than 5% overlap with the WisdomTree Cloud Computing Fund, according to a research report by Schwartz and Kara Marciscano, senior research analyst at WisdomTree. The reason why comes down to the fund’s selection criteria.

WisdomTree first launched the cloud computing fund on 6 September 2019, using an index methodology that seeks to track 50 companies in the BVP Nasdaq Emerging Cloud Index [EMCLOUD].

The index tracks pure-play stocks that generate the majority of their revenue from cloud computing and that have annual revenue growth of at least 15% for the past two years, or 7% for current constituents, according to Schwartz.

As of 1 July, the three holdings in the WisdomTree Cloud Computing Fund were Fastly [FSLY] at 5.35%, Zoom at 3.6% and Zscaler [ZS] at 2.92%. Its top 10 constituents account for 30.30% of the portfolio.

“You can't just be a big up and coming cloud company with no growth. You have to maintain that fast growth to stay in [the ETF], so that is one of the exciting things,” Schwartz told Nasdaq’s Trade Talks in early September 2019. “If you're looking for growth, the cloud space is really where you're getting the fastest.”

“If you're looking for growth, the cloud space is really where you're getting the fastest” - Jeremy Schwartz, executive vice president and global head of research WisdomTree

 

He cited the median annual growth rate of cloud companies as 30%, making it four times faster than the market as a whole in the year to September 2019.

“When you think about what is happening in the world economy, software is really the future of tech, and cloud is the future of software. I think it is one of those areas where you are getting the fastest growth rates within the entire technology sector,” Schwartz said.

The success of the fund, which has $418.8m in net assets as of 30 June, has attracted many investors and traders. According to Benzinga, it has had just over $120m inflows so far this year.

What sets the WisdomTree Cloud Computing Fund apart from others is its focus on cloud computing stocks of all shapes and sizes, not just the mega-caps, making it perfectly placed to benefit from the lockdown economy.

 

Leveraged ETFs are complex financial instruments that carry significant risks. Certain leveraged ETFs are only considered appropriate for experienced traders.

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