Cloud Computing Meets a Brave New World

By Mark Marex, Product Development Specialist

The ISE CTA Cloud Computing Index (CPQ) was launched on December 31, 2007, when the industry was still nascent and about to experience a rapid phase of expansion and maturation. During the 2010s, CPQ returned 506% on a total return basis, besting even the Nasdaq-100 (NDX) Index, which soared 426%. Its constituent basket expanded from 28 to 62 in 2019 as a result of a methodology revamp that sought to identify a wider and more suitable spectrum of companies involved in cloud computing, falling into one of three main categories (Infrastructure-as-a-Service, Platform-as-a-Service, Software-as-a-Service). With the input of the Consumer Technology Association (CTA), companies now receive points for their involvement in one or more categories (3 for IaaS, 2 for PaaS, 1 for SaaS) and are weighted accordingly. Constituents are capped at 4.5% at each index rebalance and reconstitution. Let’s review how CPQ has performed in the recent past and what its components look like today, followed by a consideration of the drivers of future performance.

ISE CTA Cloud Computing Index (CPQ) Chart 1

Of the 64 constituents in CPQ, the top 15 represented 49% of the index weight as of the end of 2Q’20. The top 32 names represented approximately 79%, while the top 5 represented 20%. The largest of these were Amazon (AMZN) and Microsoft (MSFT), with weights above 4% and returns of 49.3% and 29.0%, respectively. Most of the others in the top 15 have fared well despite the volatility and economic upheaval attributed to the Coronavirus pandemic, with an average YTD return of nearly 46%; only CenturyLink (CTL) has seen its price decrease. The biggest standouts have been Fastly (FSLY), up over 300%, and Shopify (SHOP), up nearly 140% after being the top performer in the index during 2019. Names not in the top 15 performed somewhat worse, with an average YTD return of approximately 32%.

ISE CTA Cloud Computing Index (CPQ) Chart 2

In terms of market capitalization for the overall group, the average was $101.0bn, while the weighted average was $221.3bn. The median was only $11.3bn, however. This large skew results from the outsized market caps of Amazon, Microsoft, and Google – all in the vicinity of $1-1.5 Trillion (and to some extent, also Alibaba (BABA) at more than $500bn). Yet, the fat tail at the top of the size distribution does not necessarily mask a long tail at the bottom end, as only 5 constituents fall into a true “small-cap” designation with market caps less than $2.5bn, representing less than 5% of the total index weights. CPQ is still, ultimately, an index of mostly large-cap companies with a sizable mid-cap segment as well.

ISE CTA Cloud Computing Index (CPQ) Chart 3

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