When we talk about ‘cloud’, that doesn’t mean the clouds in the sky. It’s referring to businesses that use the internet as a major part of delivering their product or service to investors.
Prior to COVID-19, there had been a slow and steady shift of businesses changing to utilising digital infrastructure. The businesses have been able to utilise the faster internet speeds to create services that just couldn’t exist a decade or two ago.
COVID-19 has accelerated these trends and there has been a huge amount of cloud computing adoption by customers and businesses over the last 12 to 15 months.
What types of shares are in the CLDD ETF portfolio?
There lots of different types of cloud computing businesses in different sectors. There’s application software, internet services and infrastructure, systems software, specialised real estate investment trusts (REITs) focused on cloud computing, movies and entertainment, internet and indirect marketing retail and so on.
‘Application software’ makes up just over half of the ETF’s portfolio.
The biggest position in the ETF is Zscaler, a cloud-based information security platform. Shopify is the next biggest position, it’s an e-commerce business. Then there’s businesses like Zoom Video, Dropbox, Twilio and Salesforce.
Further down the holdings list are businesses like Netflix, Xero Limited (ASX: XRO), Amazon, Microsoft, Alphabet and Alibaba.
An ETF’s fees can make a big difference to the returns over time.
Betashares Cloud Computing ETF has an annual management fee of 0.67% per annum. Whilst that’s not as much as many fund managers charge, there are quite a lot of index-based ETFs that have cheaper fees.
The all-important returns
Returns are probably the most important reason for investing. So knowing how well the ETF has done historically could be very important.
Future returns aren’t necessarily going to be the same as past returns, but it may give some insight into how the businesses have been performing.
This ETF is pretty new, it listed in February 2021, so it doesn’t have much of a history. Over the last five years it has produced an average return per year of 37.2%.
I don’t think it’s going to do that type of return over the next five years as growth in percentage terms slows for the underlying businesses and interest rates are likely to rise.
Summary thoughts on CLDD
The underlying businesses, as a group, are growing strongly and could continue to be good performers over the long-term. The world isn’t going to un-digitalise. However, there’s likely to be a lot of volatility over the coming few years.