Sign up for the ITPro Today newsletter
Stay on top of the IT universe with commentary, news analysis, how-to's, and tips delivered to your inbox daily.
Guide to Cloud Computing ETFs
Cloud computing ETFs provide an easy, diversified way to invest in the cloud industry without picking individual stocks.
4 Min Read
Alamy
At a Glance
- Cloud computing ETFs offer an easy way to invest in the cloud industry without picking individual stocks.
- Advantages include diversification and no need to choose stocks.
- Downsides include limited control over specific investments and potential liquidity issues.
Want to invest in the cloud computing industry without having to bet on individual stocks? If so, a cloud computing ETF might be just what you're looking for. Cloud computing ETFs make it easy to invest in the cloud while also diversifying risk.
Read on for a look at how cloud ETFs work, why you may or may not want to purchase shares in a cloud ETF, and where you can do so if you choose.
What Is a Cloud Computing ETF?
A cloud computing exchange traded fund, or ETF, is an investment product that focuses on companies in the cloud computing space. A cloud ETF owns stocks or other securities related to the cloud industry, and investors can purchase shares in the ETF as a means of investing indirectly in whichever companies' shares are owned by the ETF.
The other main way to invest in the cloud industry is to purchase shares in cloud computing companies yourself — which you can do through almost any brokerage but which would require you to choose which specific stocks to buy.
Pros and Cons of Cloud ETFs
Compared with investing directly in shares of cloud computing companies, cloud ETFs provide two key advantages:
Investors don't have to pick individual stocks. The work of deciding which cloud computing companies' shares to buy is outsourced to the company that manages the ETF.
Because ETFs typically own shares in multiple companies, their investments are diversified. As a result, if one company's stock were to plummet unexpectedly, the losses to ETF investors would be limited. (On the other hand, of course, investors will profit less if there is a surge in one stock's value.)
So, if you want an easy cloud investment experience that also balances out your risk, a cloud ETF is a good solution.
The main downside of a cloud ETF from an investment standpoint is that it limits how much control you have over your investments. You can't change the investments made by the ETF; only the ETF managers can do that. This means that if, for example, you have a strong hunch that a particular cloud computing company is going to increase in value, you will have no way of increasing your share of ownership in that company. You'd have to hope that the ETF managers see the same upside in the company that you do, and that they purchase more shares in it accordingly.
ETFs may also be subject to disadvantages like lower liquidity, which means you may not be able to sell your ETF shares immediately. But this is typically not an issue when investing in large cloud ETFs that experience a lot of trading.
Six-month daily chart of the Fidelity Cloud Computing ETF.
Where and How to Buy Cloud ETFs
You can purchase cloud ETFs through most mainstream stock brokerages — such as Fidelity, TD Ameritrade, or Robinhood, to name just a few options.
Note, however, that the fees you'll pay to purchase an ETF are typically lower if you purchase the ETF through the same company that owns the ETF — so if you want to buy shares in Fidelity's cloud ETF (which we discuss below), for instance, doing so will likely be cheaper if you purchase the shares directly through Fidelity.
Popular Cloud ETFs
As of 2024, there are three main ETFs that focus specifically on the cloud computing market:
The Fidelity Cloud Computing ETF, which owns shares mostly in data center and software-as-a-service (SaaS) companies. (Interestingly, Amazon, which owns the world's largest public cloud computing platform, is not among the top 10 of the fund's holdings.)
The First Trust Cloud Computing ETF, which focuses mostly on public cloud providers and cloud hardware vendors. SaaS companies are less important to this ETF.
The WisdomTree Cloud Computing Fund, whose mix of holdings is more diverse than the other two cloud ETFs described here. It includes consumer-oriented cloud companies like Wix and PayPal, as well as companies that don't have a central focus on the cloud, like Q2.
Beyond these, there are plenty of ETFs out there that invest in cloud and other technology companies — such as iShares Future Cloud 5G and Tech ETF. But the three ETFs described above are currently the main ETF options that target the cloud industry specifically (at least nominally — as noted above, the WisdomTree cloud ETF has a somewhat loose focus on cloud computing companies specifically).
Conclusion
You don't need to buy a cloud ETF to invest in the cloud computing industry, but cloud ETFs make the process simple and, in some respects, lower your risk. And with several different cloud ETFs to choose from, each with different areas of focus, investors have plenty of options to choose from when deciding where to place financial bets about cloud computing's future.
About the Author
You May Also Like
.jpg?width=700&auto=webp&quality=80&disable=upscale)
