BetaShares is set to add to its swelling arsenal of ETFs with the launch of a cloud computing ETF slated for late-February.
The BetaShares Cloud Computing ETF (CLDD) will track an index of global companies that make money from cloud computing.
Cloud computing is defined to include companies that provide software, platforms and infrastructure that are hired out over the internet (SaaS, PaaS and IaaS), run data centre real estate investment trusts (REITs) or make cloud-relevant hardware.
The index is built in tiers, a bit like a wedding cake.
In the first tier, companies that make 50% or more of their revenue from cloud computing – like Twilio, Shopify, Zscaler – get the red carpet treatment. They get priority access into the index and are allowed to take more of the ETF.
In the second tier are diversified global tech giants – like Alibaba, Amazon and Microsoft – that make at least $500M from cloud computing. Their role in the fund is deliberately kept smaller, with each only allowed to take 2% of the fund.
The third there is the data centre REITs – like QTS Realty Trust and Coresite – which can collectively take just 10% of the fund.
CLDD is designed to be similar to the NYSE-listed Global X Cloud Computing ETF (CLOU), which has raked in a stupendous $1.6bn over the past two years.
There are 36 companies in the ETF.
Alex Vynokur, boss of BetaShares, said that cloud computing is widely regarded as a major growth industry.
He added: “Only just a few days ago, Goldman Sachs published an interesting interview with a pretty well respected investor called Stanley Druckenmiller. He was asked what he thought the most compelling investment opportunities. He said cloud.”
He adds that the market consensus that cloud is a growth story means that the valuation multiples of cloud companies are often high. Twilio, for example, is currently trading on a forward PE ratio of 5,000 – data from Morningstar indicates.
However, Vynokur added that record low interest rates, which seem poised to remain low, potentially justify higher valuations.
“The market is pricing in growth, there’s no question about it. But if you look at revenue growth rate for companies in this index, it is significantly higher in the S&P 500 or MSCI World,” he continued.
“Valuations and PE multiples…[are] certainly a controversial topic, but what is without doubt is that the long term growth in revenue and bottom line of these cloud companies is pretty compelling. But I think the short term price could be volatile, it’s a concentrated portfolio.”
