Cloud Computing Shines in the New Normal

Each week a team member from Nasdaq Global Indexes provides insight into what is happening across a variety of investment theses. From index and ETF performance, to analysis of market trends, our experts will cover what’s hot in the world of passive investment strategies.

This week, Mark Marex, CFA, discusses the ISE CTA Cloud Computing Index (CPQ) and its performance:

• The ISE CTA Cloud Computing Index’s (CPQ) year-to-date performance is up 25.9% on a price return basis (as of July 27, 2020) and is outperforming the Nasdaq-100 index (NDX) by 3.7%. In turn, the NDX continues to outperform the broader Nasdaq Composite and all other US benchmarks by a healthy margin. 
• The top 25 constituents of CPQ, which make up the bulk of the weight of the index, generated gross margins in the 50-80% range during full-year 2019. These companies are the main driving force of the index’s extremely positive uptick. 
• Although we’ve only recently passed the halfway mark of 2020, the expectations are for continued strength in the cloud industry. Microsoft’s gross margins have remained steady, down only 2% year over year, while cloud revenue growth was up by 50% per their recent earnings release. As the second largest constituent, this is an encouraging sign for the near-term outlook of the index, as other constituents are set to report in the coming weeks. 
• The most impressive members of the index have been Fastly (FSLY) and Shopify (SHOP) with year-to-date meteoric returns (as of June 30, 2020) of 324% and 139%, respectively. 
• For investors interested in this index, First Trust has 2 products tracking – the First Trust Cloud Computing ETF (SKYY) and First Trust Cloud Computing UCITS ETF (FSKY) – which combined are nearing $5 Billion in assets under management.