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Top 5 Cloud Computing ETFs For 2022 (Updated July 2022)

The cloud sector is getting hit this year, but stock valuations now look pretty compelling.

Cloud computing stocks are down more than 30% in 2022 thanks to the Fed sharply raising rates to fight inflation and excessive valuations coming back down to earth. For existing investors in almost every tech subsector, it's been a rough ride. For investors considering dipping their toes back into cloud stocks, the risk/reward profile looks much more favorable.

The sector's current P/E ratio of around 22 is roughly 20% below its 5-year average. Granted, 22 times earnings as we head into a potential recession doesn't necessarily represent good value, but it certainly qualifies as reasonable given the sector's growth forecast over the rest of the decade.

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Longer-term investors might like current prices as a potential entry point, but risks remain high. We don't know where the bottom will be in this economic slowdown. It's likely that there's at least some degree of damage yet to be experienced, but the outlook could depend on the Fed's stance. Once the Fed decides to make a dovish pivot, which is almost certainly coming in the next 6-12 months, it could be enough to spark a relief rally where cloud stocks could do quite well.

The cloud industry still represents a high growth opportunity with relatively attractive valuations.

Best Cloud Computing ETFs

Best Cloud Computing ETFs

Here is the latest view of 5 cloud computing ETFs to consider in 2022.

First Trust Cloud Computing ETF (SKYY)

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SKYY is the biggest and oldest cloud-focused ETF out there having launched just over a decade ago and accounting for 70% of cloud ETF assets overall. Qualifying components must meet minimum liquidity requirements and are given a "cloud score", which is designed to assess the company's involvement in the cloud space. Companies that work in the IaaS space are given higher scores, but those with exposure to PaaS and SaaS are also considered. The final list of up to 80 different names are given modified equal weightings based on the cloud score.

You've got a handful of the well-known names among the top 10 holdings - Microsoft, Alphabet, Alibaba, Amazon and Oracle - but also includes companies, such as VMware, Rackspace Technologies, Pure Storage and Lumen Technologies.

Global X Cloud Computing ETF (CLOU)

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CLOU is a good example of how two funds with "cloud computing" in the name can actually look very different. It has a similar general focus to that of SKYY, but the two only have a 26% overlap in assets. CLOU is more concentrated, holding only about 35 names, and tends to lean a little harder into smaller company stocks. The other main difference is that CLOU will consider data center REITs as well, an area which accounts for about 4-5% of fund assets.

To qualify for the fund's index, companies must have at least 50% of its revenues derived from cloud activities or generate at least $500 million from cloud infrastructure. Companies with the greatest percentage of cloud exposure make the final index with qualifying components getting market cap weighted.

WisdomTree Cloud Computing ETF (WCLD)

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WCLD hit the market a little over two years ago and, at the time, was the cheapest offering in the space at 0.45%. It takes the #1 spot on this list thanks to its comparatively reasonable expense ratio, good liquidity and higher diversification.

Like the others, the fund requires specific cloud industry exposure to qualify, but also requires certain year-over-year revenue growth benchmarks to be met. If you're searching for additional differentiators to the funds already mentioned, WCLD is the only one that focuses almost exclusively in the U.S. market. It also has more than half of assets invested in mid- and small-cap stocks, making it a little more aggressive than its peers. WCLD is also probably the most diversified of the cloud ETFs due to its number of holdings and equal weighting methodology.

Wedbush ETFMG Global Cloud Technology ETF (IVES)

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IVES claims that it owns the "undercover gems" of the cloud industry. If you look at the fund's top 10 holdings, that looks like it's probably true since many of the names are likely not recognized by the average investor. Consistent with that idea is the fact that IVES has the greatest international exposure by far when compared against the cloud ETF peers and also has the largest percentage of assets (again, by far) in non-large-cap stocks.

Fidelity Cloud Computing ETF (FCLD)

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FCLD is the newest addition to the cloud ETF industry universe. In true Fidelity fashion, it comes in with the lowest expense ratio of the group at 0.39%. It tends to tilt further in the direction of larger, established players and includes SAP, Salesforce, ServiceNow and Workday among its top holdings. Given that it's still less than one year old, it hasn't gained a lot of traction yet, but it's low cost and pure play exposure advantages could allow it to grow over time.

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