The “cloud” is a red-hot area in tech right now – it refers to it delivering software applications via the Internet, which often improves productivity and saves on costs.
What’s more, the cloud business has also resulted in some huge gains for investors. Just look at shares of Salesforce.com (NYSE:CRM), which clocked a return of nearly 55% last year. As for 2011, the stock price is already up 34.8%.
In light of all this, it’s no surprise that there is now an exchange-traded fund for the cloud. Backed by First Trust, the new offering is called the Cloud Computing Index Fund (NYSE:SKYY). This firm seems to have a knack for innovation — one of its other ETFs is the Nasdaq CEA Smartphone Index Fund (Nasdaq:FONE).
In recent Monday trading, the Cloud Computing ETF was off 2.3% to $19.95
The cloud ETF is based on a fairly diverse index of tech stocks, which range from software, hardware, storage and security operators. Some of the holdings include F5 Networks (Nasdaq:FFIV), Aruba Networks (Nasdaq:ARUN
), RightNow Technologies (Nasdaq:RNOW) and Salesforce. There are also positions in mega tech firms like Apple (Nasdaq:AAPL) and Microsoft (Nasdaq:MSFT).
However, there is one stock that does not seem to fit: Netflix (Nasdaq:NFLX). True, it relies heavily on technology – such as for movie recommendations – but the fact is that the company is a distributor of entertainment products, not a seller of technologies. But its position is relatively small in the fund.
The real issue for the fund is that there is a lot of overlap with similar tech offerings. Basically, the main difference is the higher weighting of cloud-type companies. But is this enough to provide long-term returns?
Perhaps a better way for an investor to participate in the cloud market is to buy a franchise company in the industry. No doubt, Salesforce would be a good choice. The company continues to grow its business at a hefty clip. And in light of the huge global opportunity for the cloud, Salesforce is likely to continue its momentum for some time.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
