I think that the BetaShares Cloud Computing ETF (ASX: CLDD) could be a good idea for a few different reasons, including the potential growth.
This investment looks to offer a portfolio of businesses that generate a significant portion of their revenue from cloud computing based services.
To be eligible for inclusion in the portfolio, a company’s share of revenue from cloud computing services must meet a minimum threshold. The portfolio is constructed so that it prioritises companies that generate the majority of their revenue from cloud-based services.
Here are three reasons to consider the ETF:
Growth industry
BetaShares says that cloud computing has been one of the strongest-growing segments of the technology sector, and given much of the world’s digital data and software applications are still maintained outside the cloud, continued strong growth has been forecast.
When looking at the CLDD ETF’s portfolio, many of the biggest positions still seemingly have plenty of years of growth to come.
Some of the biggest holdings at the moment are: Zscaler, Paylocity, Paycom Software, Salesforce.com, Shopify, Netflix, Workiva, Workday, Everbridge. Anaplan, Dropbox and Xero Limited (ASX: XRO).
High margins
Operating and offering software normally comes with a relatively low cost base. That means that those underlying businesses, such as Xero, can generate a high gross profit margin.
The good thing about a high gross profit margin, is that once the business has reached sufficient scale, the bottom line net profit can rapidly grow.
Combine high margins with fast growth – it’s a compelling long-term combination.
Pretty green companies
Plenty of the businesses in the CLDD ETF’s portfolio do relatively little harm to the planet compared to some others in different areas of the business world. I think this stands it in good stead with investors and will mean they will hopefully have little to do (meaning little change in costs as well) in the coming years if the world becomes even more focused on green initiatives.
