Cloud Technology Monthly Report | July

Key Takeaways

• Cloud technology’s cost savings and flexibility has ensured it has become a leading beneficiary of the ‘Work From Home’ Covid-19 lockdown.
• Cloud infrastructure continues to spread globally via the infrastructure giants (AWS, Microsoft Azure and Google Cloud) 
• The latest Gartner projections show the cloud computing industry almost doubling from 2018 levels 
• Recent re-balance (July 10th 2020) additions include video conferencing software provider Zoom, and web communications company Twilio

Performance Review

HAN-GINS CloudTechnology ETF (SKYY) has continued to recover well due to the popularity of cloud technology.  It posted a June gain of 4.19%, following a May return of 6.7%.  For 2020, SKYY is up over 8%.  Its NAV has exceeded a new all-time high of $10.48/share*

SKYY has benefited from work from home trends following COVID-19.  Remote office setups with VPNs along with video conferencing and a surge in demand from healthcare providers and hospitals has boosted cloud revenues.

Over the past 12 months, SKYY has gained over 20%.  It has rebounded well from its March lows – with a 2nd quarter performance of 24.08%. This has cancelled out all 1st quarter losses due to the COVID-19 crisis.

Past performance is no guarantee of future performance. Source: Bloomberg/HANetf

*YTD figures based on 01.01.20 - 30.06.20. **12 Month figures based on 01.07.19 -30.06.20

For the year to date 2020 leading performers in our portfolio include:

• NVIDIA (61.6%)
• Amazon (49.3%)
• Citrix (34.1%)
• Splunk (32.7%)

Source: FactSet/Solactive and Bloomberg Data as of 30/06/20)

The month of June saw a number of these holdings hitting new highs for 2020, on the backs of rising demand and positive earnings reports. See table on page four for full breakdown.

HAN-GINS Cloud Technology UCITS ETF (SKYY) - 1 Year Performance (28/06/19 - 30/06/20)

Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg Data as of 30.06.2020

Industry News

Significant remote working adoption rates across healthcare and hospitals have led to a surge in cloud demand and it is unlikely such behaviours will revert. The scalability of cloud means that the largest medical facilities have become permanent cloud adoptees. In the medical space, such technology is powering areas such as telemedicine, robots, chatbots, AI diagnostic machines and trackers/wearables.

Enterprises now require fewer IT staff and hardware servers to be physically present – as they increasingly use remote servers and related third-party IT functions.  Cloud infrastructure continues to spread globally via the infrastructure giants (AWS, Microsoft Azure and Google Cloud). Ultimately, this ensures that cloud-based software services (SaaS) – including SAP, Salesforce, Adobe and Oracle are more easily accessible globally. Consequently, it is easier for smaller firms to adopt these services.

For illustrative purposes only Source: Gartner Research Nov 2019

Gartner Research estimates that approximately 60% of all IT expenditure over the next few years will be devoted to the Cloud. The latest Gartner projections show the industry almost doubling from 2018 levels (see chart).

The ease of cloud technology is helping to ensure many of these remote behaviours will likely become permanent fixtures for teleworkers and schools too, well beyond just COVID-19. 

The broad-based holdings in SKYY – covering 50 holdings across Infrastructure, Platform and Software – as a Service has ensured we capture the broad gains made by Cloud firms over the past few months. Cloud's cost savings and ease of transition away from onsite IT operations has boosted adoption rates dramatically. Not surprisingly, leading cloud tech players have performed strongly propelling our HAN-GINS Cloud ETF to hit new recent highs too.

Cloud technology firms remain the leading tech beneficiaries due to the COVID-19 crises and work from home phenomenon.   The trend of remote working and IT platform flexibility syncs well with Cloud’s subscription model. Even prior to COVID-19, the annual growth rates were impressive across all major Cloud areas (SaaS, PaaS and IaaS). With new behaviours cloud security is also expected to grow faster due to cybersecurity concerns and huge growth in VPN usage.

In summary, these 3 key factors best summarise the ongoing shift to Cloud Technology:

• Cost Reduction The reduction in spending on hardware purchases and onsite premises is benefiting cloud. Cloud helps enterprises avoid the headaches of ongoing infrastructure maintenance, staff support costs, and internal upgrades.
• Reliability Increased emphasis on system reliability and security. Few hacks or internet interruptions have been experienced by major corporations during the lockdowns. A key cloud feature is the access to tools and information remotely, securely and on demand. Providing back-up and recovery of systems and business continuity is also a benefit of the cloud.
• Access and Efficiency Increased speed of deployment and the simplification of upgrades and updates. This allows enterprises to scale technology and services in line with their business growth. 

Constituent News

Below we highlight some of the best performing cloud ETF holdings in SKYY’s portfolio.  The table on the next page shows the year to date returns.  Included are the stock’s individual price gains - as well as its contribution to SKYY’s portfolio return.

Nvidia is a leading US chip maker and the inventor of the GPU (Graphic Processing Unit), which creates interactive graphics on laptops, workstations, mobile devices, notebooks and PCs.  The company focuses on personal computers (PC) graphics, graphics processing unit (GPU) and also on artificial intelligence (AI).  Its platforms primarily service four markets – gaming, professional visualisation, data centres and automakers. Nvidia provides service through PC, mobile and cloud architectures. Its Tegra mobile processors work on smartphones and tablets an assist with vehicle navigation and entertainment systems. It developed GPU-based deep learning in order to use artificial intelligence to approach problems like cancer detection, weather prediction, and self-driving vehicles. They are included in all Tesla vehicles.

Nvidia’s chips and computing systems are being used by about 320 companies involved in self-driving vehicles.  Nvidia offer both advanced driver assistance systems, plus the cars feature a driver monitoring system and 360-degree surround perception.

Splunk Inc. continues to be a leading contributor to our cloud ETF. This US firm produces software for searching, monitoring, and analysing machine generated big data, via a Web-style interface. The Company's offerings enable users to collect, index, search, monitor and analyse data.

Adobe cloud software switched to a monthly subscription service a few years ago. It has seen its market cap exceed Salesforce, valued approximately at $212bn. It has enjoyed a 15.2% stock gain during 2020 (Source: FactSet/Solactive and Bloomberg Data as of 30/06/20). Adobe's 2nd quarter earnings were propelled by strong demand for its cutting-edge subscription-based software products. It has recorded record annual recurring revenue, and growth for its cloud offerings. Its portfolio of industry-leading graphic design and media-creation software (Photoshop, After Effects, and Illustrator) and platforms for online retail and digital marketing puts the business in a good position to benefit from the continued growth of digital commerce.

The major shift to working remotely had resulted in increased demand for Splunk's cloud-based offerings, including ‘Remote Work Insights’ (RWI).  Currently more than 2,000 apps from strategic partners are available on Splunkbase (an app store of sorts for companies) to extend the usefulness of the data analytics software for specific business needs.

Cloud Tech giants Amazon, Microsoft and Apple have all touched new highs during the past quarter.  Apple is now worth almost $1.5 trillion.  Amazon and Microsoft also powered above $1 trillion market caps recently. (Source: Bloomberg Data as of 30/06/20).

Top Performing Contributors – YTD 2020 (01.01.20 – 30.06.20

Past performance is no guarantee of future performance Source: FactSet/Solactive and Bloomberg Data as of 30/06/20

Fund Details

HAN-GINSCloud Technology UCITS ETF, is a UCITS compliant cloud computing ETF domiciled in Ireland.   The SKYY cloud ETF tracks the Solactive Cloud Technology Index and 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. Please remember that the value of your investment may go down as well as up and past performance is no indication of future performance.