Cloud Technology Monthly Report | May

Learn more about the Cloud computing ETF 

• The Cloud Computing ETF has expanded to 75 equally weighted holdings with an ESG screen.        
• WFH behaviour will continue to boost Cloud spending post-COVID, rising to $500bn within 2 years.[1]            
• Majority of IT spending is moving away from hardware and onsite servers to Cloud.            
• Desktop as a Service is a very fast-growing Cloud area.            
• Global public cloud infrastructure market will grow 35% to $120 billion in 2021[2].       
• Multi and Hybrid Clouds are increasingly popular due to open architecture demand.            
• Software as a Service will continue to receive the largest Cloud spending. (see chart)

Cloud Technology ETF (SKYY) Returns

Past performance is no guarantee of future performance. Source: Solactive, HANetf *12 Month figures based on 01.05.20 - 30.04.21.

Performance Review

HAN-GINS Cloud Technology ETF (SKYY) is up 8.45% over the first four months in 2021, with April seeing a strong 6.56% return.  SKYY offers broad exposure to all key areas of the Cloud revolution – infrastructure, security, platform and software as a service.  SKYY’s large-cap and infrastructure exposure ensures it accurately tracks global cloud activity well beyond just the US and software developers.

In April, SKYY’s largest contributors to performance included Teradata (28.4%), NVIDIA (12.5%), Alphabet (14.1%), Crowdstrike (14.3%), SAP (14.5%), Amazon (12.1%), Oracle (8.5%), Extreme Networks (30.1%) and Palo Alto Networks (9.7%).  The pandemic and remote working phenomenon is boosting demand for these firms’ Cloud services. They are amongst the largest weighted holdings in the portfolio. 

Teradata almost doubled earnings during the first quarter on the back of new deals with AWS, Accenture and Sirius XM (satellite radio) using the company over rivals.  Given the rise in large cyberattacks - recently Colonial Pipeline and Solar Winds (US government) – both Palo Alto Networks and Crowdstrike are benefiting from new cybersecurity orders related to cloud services.

Big Tech giants are expanding the Cloud reach into the fast-growing Healthcare sector, as hospitals increasingly switch to Virtual services and Telemedicine. Microsoft’s $16bn acquisition of Nuance Communications reinforces this trend.  Nuance is a leader in the field of digitizing doctor patient visit details/conversations and clinical documentation.

In 2021, a clear trend is the move to more hybrid/multi-cloud platforms and infrastructure.  Salesforce, IBM and SAP are expected to benefit from this open architecture - allowing the easy flow of data across multiple Clouds.  

HAN-GINS Cloud Technology UCITS ETF

– Performance As of 30.04.21

Past performance for the index is in USD. 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. *The fund changed its index on 14th April.  The index performance is a composite of the old index prior to this date and the new index after Past performance is no guarantee of future performance. Source of all data: Solactive/ HANetf as of 30/04/2021  

Industry News

Gartner predicts public cloud services will hit almost $400bn in spending by next year. They estimate 37% of all public cloud services revenue is from SaaS applications and services (in 2021), projected to reach $122.6bn with CRM being the dominant application category.  Corporates are prioritising cloud infrastructure investment to better support virtual workforces, supply chains, partners, and service partners.

Desktop as a Service (DaaS) is likely to grow fastest at 67% in 2021, followed by Infrastructure as a Service (IaaS) with a 38.5% jump in revenue.  Platform as a Service (PaaS) is estimated to be the third-fastest growing area of public cloud services, with a 28.3% jump in revenue for 2021 predicted.

SaaS, the largest segment of public cloud spending (37% in 2021), is forecast to grow 19.3% this year. This chart summarises these growth rates of public cloud services between 2020 and 2021. 

For illustrative purposes only. Past performance is no guarantee of future performance. Source: https://enterpriseirregulars.com/177360/gartner-predicts-public-cloud-services-market-will-reach-397-4b-by-2022/

Cloud spending is not expected to slow down as the pandemic gets under control.  Remote work habits are expected to continue and Cloud computing is arguably the centrepiece of the world’s technical response to the COVID-19 crisis.

By the end of 2021, we expect 60% of companies will utilise public cloud platforms and 25% of developers will use serverless. Cloud native technology is driving enterprise digital transformation strategies.  Other key trends include:

Alibaba Cloud is expected to take over the No. 3 revenue spot globally, after Amazon Web Services (AWS) and Microsoft Azure.

Constituent News

SKYY now has 75 holdings consistently, expanding from 50 (fast-growing players).  Our updated Equal Weighted approach, captures smaller and more innovative Cloud companies.  Each holding now averages around 1.3% at rebalance.

These April changes ensures SKYY’s broader holdings are now one of the most representative Cloud ETFs, mirroring the global revenue mix across the Cloud industry and its subthemes:

Highlights include: 

• More representative of Cloud industry with SaaS holdings (Software as a Service) now the largest weighting at 66%, PaaS 20% and IaaS 14%.       
• A new ESG screen will follow UN Global Compact rules (excludes controversial weapons, fossil fuels etc).        

   

• SKYY’s Top 10 holdings only represent 17.6% of the portfolio - versus 21% for WCLD.      

   

• WCLD is focused solely on software companies, often called SaaS or Software as a Service.       

   

• SKYY incudes companies across the cloud space including Infrastructure as a Service (Iaas) and Platform as a Service (PaaS).      

   

• SKYY is globally diversified - US exposure 76.6%, followed by China 8.4%, Israel 3.5%, Germany 2.5% and Japan 2.4%.        

   

• As Cloud is rolled out globally – these players are best positioned to scale up globally.

   

For illustrative purposes only. Source:  Solactive Index, GinsGlobal Index Funds, April 2021    

Outlook

The majority of IT corporate spend is moving away from onsite hardware and servers to remote Cloud usage.  Data centre chip revenues and Hyperscale Cloud have seen significant revenue boosts during COVID.

SaaS (Software as a Service) will continue to dominate Cloud spending (see chart below).  Infrastructure- and Platform as a Service areas together currently represent the remaining ~50% of Cloud computing revenues. 

Hybrid Cloud’s growing popularity using open-source software such as Linux ensures many more businesses can now embrace the Cloud. This ensures faster scaling up for business globally. The shift to hybrid cloud translates to a blurring of the lines between the public cloud and the traditional data centre. 

Artificial intelligence, analytics, security, IoT, and edge computing will likely be key differentiators among the top cloud service providers – along with serverless and managed services.

Cloud usage in Asia for online gaming and streaming has made this region the fastest growing area for digital entertainment.