You could argue that having a portfolio with no or little exposure to the global technology sector would devoid an investor of the potentially massive growth opportunities presented by the companies who operate and are leaders in the space.
Globally, mega-cap technology shares have dominate the headlines over the last number of years and have served investors well, but what about the sub-sectors and specialty companies that operate in niche industries where the next waves of massive growth could manifest?
Today I want to have a look at two specialty sector ETFs:
#1. First Trust ISE Cloud Computing Index Fund (SKYY)
Cloud computing is an information technology (IT) paradigm, a model for enabling ubiquitous access to shared pools of configurable resources (such as computer networks, servers, storage, applications and services),which can be rapidly provisioned with minimal management effort, often over the Internet. Cloud computing allows users and enterprises with various computing capabilities to store and process data either in a privately-owned cloud, or on a third-party server located in a data center – thus making data-accessing mechanisms more efficient and reliable. Cloud computing relies on sharing of resources to achieve coherence and economy of scale, similar to a utility.
Total size of the public cloud computing market from 2008 to 2020 (in billion U.S. dollars):
The First Trust Cloud Computing ETF tracks a tiered equal-weighted index of companies involved in the cloud computing industry.
SKYY is the only ETF on the market that focuses on cloud computing, but its complex methodology highlights the difficulty of capturing this particular space. It holds a mix of pure-play, non-pure-play and technology-conglomerate cloud computing companies, and weights each type of company equally within its category. SKYY allocates 10% of its portfolio to technology conglomerates that simply make use of cloud computing, and weights non-pure-play companies by their capitalization as a share of the overall market capitalization. The remainder of its portfolio covers pure-play companies. This takes SKYY far afield from our broader technology segment benchmark, tilting to midcaps with significant sector biases. SKYY can be traded safely with a bit of care, though occasionally significant spreads make limit orders advisable. Excellent primary liquidity should keep creations costs low. While SKYY isn’t cheap, its fee is about average for a niche fund with a unique methodology and approach, and tracking is generally good.