Evolve ETFs has filed a preliminary prospectus with the Canadian securities regulators for the country’s first cloud computing ETF.

The Evolve Cloud Computing Index Fund (DATA) is designed to provide investors with access to companies operating in an industry that has experienced rapid growth both pre-COVID-19 and during the pandemic.

Widespread work-from-home policies have increased the need for secure, reliable technology infrastructure and it’s a trend that is not expected to slow down once a vaccine is made available.

DATA seeks to replicate – to the extent reasonably possible and before fees and expenses – the performance of the Solactive Global Cloud Computing Index Canadian Dollar Hedged and invests primarily in equity securities of companies located domestically or internationally that have business operations in cloud computing.

The Solactive Global Cloud Computing Index measures the performance of equity securities of companies that are located in developed markets. The Index is published in Canadian dollars.

Evolve CEO Raj Lala told WP that while cloud computing is already an element within its Evolve Innovation Index Fund, the universe of companies is now big enough that it’s impossible to ignore and, therefore, deserves its own fund.

He explained: “When we look at disruptive technology, one of the foundations of our world today is data. Data has effectively become our most precious resource in the world; I would argue more precious than gold and oil. Companies have to store it somewhere and companies have to protect it. On the protection side, we’ve got that really well covered with our cyber security ETF, where we’ve had some great success with both performance and asset gathering.

“On the storage side, it’s all going into the cloud. We think that there’s a very large market – and it’s actually already two and a half times larger than the entire cybersecurity industry. Globally, right now, the cloud computing industry is about $500 billion and is expected to grow to a trillion dollars over the next few years.”

The global population has a reported 25 billion devices connected online around the world today – that’s three per person – whether it’s via your phone, thermostat or maybe even your fridge. And there is little doubt that remote working has resulted in a surge of demand for software.

Lala said: “DocuSign is a great example of software as a service infrastructure that we need during this type of environment. The amount of data that’s been moving to the cloud since COVID kicked in has been pretty significant. For our business, there’s Salesforce, which is cloud-based software and Zoom, of course, which has become instrumental to our lives. Then think about Disney+, Netflix … that’s cloud computing.

“What’s interesting is it’s become a foundation for a long-term behavioural shift, I believe. We’ve gotten used to this technology and even when we start to go back to our office, it’s still now going to be integrated into our everyday life.”

Lala added that it’s become such a large industry that it’s now impossible for investors to ignore.

“Pretty much everything you’re doing in your daily life today includes cloud computing, and is utilizing the software as a service, platform, or infrastructure as a service. Everyone can appreciate how big of an industry that’s become and I think that’s one of the reasons it’s become so investable.”

Anthony Ginsberg, Co-Creator of HAN-GINs Cloud Technology UCITS ETF (SKYY), which is a cloud computing ETF, expects growth in the sector to accelerate and predicts more M&A corporate activity in the cloud space, particularly amongst cloud security firms.

On this point, Mr Ginsberg said: “Due to COVID-19, cloud technology is increasingly embedded into mainstream work-life activities – from digital entertainment/streaming services to video conferencing, social media and remote learning. We expect global cloud spending to hit a new all-time high for the 3rd quarter – as cloud spending globally continues to gain momentum”

“As Work From Home (WFH) behaviours become ingrained amongst tech savvy workers – pre Pandemic work rules are unlikely to revert. Cloud now drives the Internet of Things, from Social Media and Digital Entertainment to Healthcare Innovation (trackers and telemedicine), Future Cars, Cyber Security and AI-Robotics. Many of the larger Cloud players are vertically integrated – offering a variety of cloud services form software to infrastructure and security too” said Mr Ginsberg.

While the US is the most built-out across Cloud, Europe and developing nations are where much of the future growth is expected. Larger cloud players currently have a distinct advantage over smaller Cloud players given their existing global reach. Many cloud themed ETFs focus on US companies but SKYY has global holdings.

“Given the flexibility cloud subscription services affords users and the significant cost savings – versus maintaining onsite hardware – IT budgets are increasingly shifting away from hardware to Cloud. We also expect global cloud spending to hit a new all-time high for the 3rd quarter – as cloud spending globally continues to gain momentum.”

“The large Cloud Infrastructure players will be unable to make huge ground-breaking deals due to the US Election and anti-trust concerns. We expect smaller add-on acquisitions by the Megacap players whose record share prices provide them with a relatively low-cost, cheap currency” said Mr Ginsberg.

The HAN-GINS Cloud Technology UCITS ETF, is a UCITS compliant Cloud computing ETF domiciled in Ireland. It tracks the Solactive Cloud Technology Index, which was specifically developed for this cloud computing ETF.

The index seeks to provide exposure to companies active in the field of Cloud computing, such as service providers or producers of equipment or software focused on Cloud computing. The HAN-GINs Cloud Technology UCITS ETF (SKYY) delivered a return of 21.49% over the past 12 months 1 . Past performance is no guarantee of future performance.

Below are five key stocks held by SKYY, which Mr Ginsberg and his team have identified as particularly interesting for investors now, and why they think this. The opinions in this email and reports are of the authors and must not be relied upon as investment advice.

AWS now dominates the global Cloud infrastructure market with an approximate 30% market share. It is the primary Cloud host for most global enterprises – with a huge lead over the likes of Microsoft’s Cloud service Azure and Google Cloud. AWS’ revenues rose 31% year-over-year to $21 billion, or 13% of Amazon’s total revenue, in the first half of 2020. More importantly AWS’s profits now represent close to 65% of Amazon’s total operating profit. Its profits are now significantly subsidizing Amazon’s Prime and other lower-margin e-commerce businesses.

It now owns and operates the world’s largest cloud-based CRM (customer relationship management) software platform. It primarily services private and public enterprises. It controls almost 20% of the market, compared to its European rival SAP which holds a small 5.3% share.Salesforce also now offers various cloud-based e-commerce, marketing, and analytics services. Currently these services help over 150,000 companies to streamline and automate certain tasks, reducing overall dependence on human employees.

Its revenues significantly beat expectations recently – rising 30% year-over-year to $10 billion in the first half of 2020. It showed just how strongly it has benefited from the lockdown and is seen as one of the largest beneficiaries of the new ‘Working From Home’ phenomenon and change in office behavior. It is benefiting from the acceleration of cloud-based CRM, marketing, and e-commerce solutions.

Over the past few years using a subscription model online, Adobe has transformed its desktop-based design software into a highly successful subscription-based cloud service. It has subsequently expanded its offering with analytics, advertising, and e-commerce services.