WisdomTree launches growth-tilted cloud computing ETF

Sep 6th, 2019 | By | Category: Equities

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WisdomTree has launched a new thematic equity ETF in Europe, providing exposure to rapidly growing cloud computing companies.

Jeremy Schwartz WisdomTree

Jeremy Schwartz, WisdomTree EVP and Global Head of Research.

The WisdomTree Cloud Computing UCITS ETF has listed on London Stock Exchange and comes with an expense ratio of 0.40%.

At 40 basis points, it becomes the cheapest cloud computing ETF in the European market.

It is available to trade in US dollars (WCLD LN) and pound sterling (KLWD LN).

Cloud computing refers to shared pools of configurable computer system resources and higher-level services that can be rapidly provisioned with minimal management effort, often over the internet.

Through the delivery of computing services via the internet – from servers, storage, databases, networking, and software – cloud computing has helped fuel technological expansion by enhancing global accessibility and unveiling new ways to grow businesses.

The global cloud computing market has grown exponentially and is projected to total nearly $697 billion by 2025.

Jeremy Schwartz, EVP and Global Head of Research at WisdomTree, commented, “The WisdomTree Cloud Computing UCITS ETF targets cloud computing businesses, which we believe are best positioned for high levels of recurring revenue growth and have the potential to scale at a faster rate than traditional tech companies. Cloud-based businesses typically have better profit margins and higher growth than other tech companies.”

Methodology

The fund is linked to the BVP Nasdaq Emerging Cloud Index, an index created by exchange operator and indexer Nasdaq in collaboration with venture capital firm Bessemer Venture Partners (BVP). BVP as more than two decades of experience investing in cloud-related companies.

The index selection process starts with an initial universe of US-listed firms and American Depository Receipts with market capitalizations greater than $500 million and average daily trading values of at least $5m.

BVP then uses its proprietary research to identify companies linked to the cloud computing theme. To qualify, firms must derive the majority of their revenue from business-oriented software products which are provided to customers through a cloud delivery model (i.e. hosted on remote and multi-tenant server infrastructure, accessed through a web browser or mobile device, or consumed as an API) and provided to customers through a cloud economic model (as a subscription-based, volume-based, or transaction-based offering).

The methodology then employs a screen to identify those qualifying cloud-related companies that have grown their revenues by at least 15% in each of the past two fiscal years. These companies make up the final index composition and provide the fund with an explicit growth tilt.

Constituents are equally weighted and rebalanced semi-annually in February and August. To reduce portfolio turnover, a constituent can maintain its place in the index as long as it continues to meet the revenue-relevance requirement and has recorded annual revenue of at least 7% in at least one of the last two fiscal years.

Comparable funds

There are currently two other ETFs in Europe that target the cloud computing theme.

The First Trust Cloud Computing UCITS ETF (SKYU LN), which debuted in February of this year, is linked to the ISE CTA Cloud Computing Index, the same index that underlies a US-listed First Trust ETF that has accrued over $2.2 billion in assets under management since launching in 2011. To be included in the index, a security must be classified as a cloud computing company by the Consumer Technology Association (CTA) and have a minimum market capitalization of $500 million, a minimum free float of 20% and three-month average daily dollar trading volume (ADDTV) of at least $5 million. The fund comes with an expense ratio of 0.60%.

The HAN-GINS Cloud Technology UCITS ETF (SKYY LN), which launched in October 2018, tracks the Solactive Cloud Technology Index, a reference for 50 companies globally operating in the field of cloud-based software and services. Stocks are selected using natural language processing which identifies thematic exposures in companies using unconventional data sources. To be included in the index, a security must have a market capitalization of at least $100m and average daily trading volume in the last three months of at least $2m. The index is weighted by free-float market cap with a single issuer cap of 4%. The lower size and trade volume requirements mean the fund has the potential to tilt more towards small-caps than either the WisdomTree or First Trust funds. This fund comes with a slightly higher expense ratio of 0.75%.

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