Welcome to the
The First Trust ISE Cloud Computing Index Fund
The First Trust ISE Cloud Computing Index Fund (NASDAQ:SKYY) is linked to a unique benchmark that includes everything from small relatively new tech companies to established giants such as Microsoft, Apple, and Google. The methodology behind the index includes both "pure play" cloud computing companies that focus their operations on this emerging technology, as well as firms that derive only a portion of their revenues from the space or are more tangentially involved in "the cloud"
Cloud Computing: A Brief Overview
Few investors have a firm grasp on exactly what cloud computing is and how best to define the budding industry. First off, the term cloud computing was derived from the visual representation of the industry, which often resembles a cloud. Though one could literally write a book on all of the nuances that go along with cloud computing, the short and sweet version is that this term refers to anything that involves offering and delivering services over the Internet. This industry can be broken down into three broad categories: infrastructure-as-a-service, platform-as-a-service, and software-as-a-service.
Infrastructure-as-a-service involves virtual storage and other hardware services to businesses and individuals without requiring ownership of any mainframes or hardware. Platform-as-a-service involves development tools and software offered by a provider who stores and maintains the actual infrastructure-GoogleApps would be a well known and widely used example. Software-as-a-service includes products offered through the cloud to anyone who wants them; this category includes functions such as Google Docs or even many email providers (some versions of the cloud have been around and in use for many years). Software-as-a-service would also include Microsoft Office, which the company just announced it would be offering in an effort to compete with Google in this increasingly important space.
Case For Cloud Computing
Cloud computing is a new and rapidly-expanding segment of the tech market, and companies such as Apple Inc. (NASDAQ:AAPL), Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), and IBM (NYSE:IBM) have stepped to to provide cloud computing services to businesses of all sizes.Cloud computing has a number of different applications, but the general idea is relatively simple. "Simply put, the cloud allows the storage and retrieval of information from a remote server via a network, rather than an individual PC," writes Scott Neuman. "The advantages include on-demand network access to information by way of PCs, tablets, smartphones and other computing devices."
Cloud computing has the potential to significantly enhance IT flexibility while simultaneously pushing down costs, especially for small and mid-sized businesses. While some have already embraced cloud computing, many analysts agree that the potential need for cloud computing-related services is tremendous, and will increase considerably in coming years. According to research company IDC, spending on public cloud computing services will grow five times fasterthan global IT spending in 2011 [First Trust put together a nice guide to the cloud computing space].
Specifically, companies deemed to be engaged in the cloud computing industry are allocated to one of three buckets:
- Pure Play Cloud Computing Companies: Direct service providers for "the cloud" or companies that deliver goods and services that utilize cloud computing technology.
- Non Pure Play Cloud Computing Companies: Focus outside the cloud computing space but provide goods and services in support of the cloud computing space.
- Technology Conglomerate Cloud Computing Companies: Indirectly utilize or support the use of cloud computing technology.
Under The Hood
There is a strong likelihood that cloud computing revenues will grow in coming years, but it remains to be seen just how closely gains in that industry translate into gains in SKYY. While all components of the index are engaged to some extent in cloud computing, many stocks represented in the index are also impacted by other factors. One of the largest components of the underlying index, for example, is Netflix.
SKYY is the 60th ETF from First Trust, and is among several products from the company that offer targeted sub-sector level exposure. Already this year, First Trust has launched the NASDAQ Global Auto Index Fund (NASDAQ:CARZ) and NASDAQ CEA Smartphone Index Fund (NASDAQ:FONE).
ISE Announces the Launch of the First Trust ISE Cloud Computing Index Fund
NEW YORK, July 6, 2011 - The International Securities Exchange (ISE) today announced that First
Trust Advisors L.P. has launched the First Trust ISE Cloud Computing Index Fund (Ticker: SKYY), the
first ETF that tracks companies actively involved in the emerging cloud computing industry. The First
Trust ISE Cloud Computing Index Fund is based on the ISE Cloud Computing™ Index (CPQ), a new
benchmark for this growth sector that includes companies that are direct service providers for the "cloud,"
firms that provide goods and services in support of the cloud computing space, and technology
conglomerates whose business model uses or supports cloud computing technology. SKYY began
trading today on The NASDAQ Stock Market®.
"The ISE Cloud Computing Index reflects the evolution of technology infrastructure and provides new and
dynamic opportunities for investors," said Kris Monaco, Head of New Product Development at ISE. "We
are very pleased to partner again with First Trust to launch this unique exchange-traded fund focused on
this rapidly expanding industry."
"Cloud computing is projected to be one of the fastest growing IT markets this year, according to IDC
Research," said Ryan Issakainen, Vice President, ETF Strategist. "As businesses and consumers
continue to migrate to a cloud environment, we believe there are significant growth opportunities for the
companies involved in all aspects of cloud computing. The ETF provides a way to gain diversified
exposure to those companies. Forrester Research is projecting total public cloud revenues to go up 27%
annually to reach nearly $160 billion by 2020, up from $15 billion in 2010."
The First Trust ISE Cloud Computing Index Fund is the ninth ETF that First Trust has launched based on
an ISE index. Total assets under management for this portfolio of ETFs was $1.2 billion as of June 30,
Additional information about ISE's portfolio of proprietary sector indexes, including methodology guides,
component lists and weightings, performance metrics and historical data, is available at
The International Securities Exchange (ISE) operates a leading U.S. options exchange and offers options
trading on over 2,000 underlying equity, ETF, index, and FX products. As the first all-electronic options
exchange in the U.S., ISE transformed the options industry by creating efficient markets through
innovative market structure and technology. Regulated by the Securities and Exchange Commission
(SEC) and a member-owner of The Options Clearing Corporation (OCC), ISE provides investors with a
transparent marketplace for price and liquidity discovery on centrally cleared options products. ISE
continues to expand its marketplace through the ongoing development of enhanced trading functionality,
new products, and market data services. As a complement to its options business, ISE has expanded its
reach into multiple asset classes through strategic investments in financial marketplaces and services
that foster technology innovation and market efficiency. Through minority investments, ISE participates in
the securities lending and equities markets. ISE also licenses its proprietary Longitude technology for
trading in event-driven derivatives markets.
ISE is a wholly owned subsidiary of Eurex, a leading global derivatives exchange. Eurex itself is jointly
operated by Deutsche Börse AG (Ticker: DB1) and SIX Swiss Exchange AG. Together, Eurex and ISE
are the global market leader in individual equity and equity index derivatives