Cloud Technology Monthly Report | July

Our latest Cloud Technology ETF monthly report explores that latest changes in the market.

• Remote work behaviour continues to boost Cloud spending post-COVID – rising to $500bn within 2 years.[1]
• Majority of IT spending is moving to the Cloud away from hardware.
• Cloud infrastructure spending is expected to double within 3 years (see chart).[2]
• 1st quarter 2021 infrastructure spending jumped 35% year-on-year to almost $42bn.[3]
• In digital entertainment we are seeing a huge usage of online Video and Gaming, with Asia being the fastest growing region.
• Multi & Hybrid Cloud is increasingly popular due to open architecture. Alibaba Cloud overtaking Google Cloud - as 3rd largest global cloud revenues.[4] 

Performance Review

Cloud Technology ETF (SKYY) Returns

Past performance is no guarantee of future performance. Source: Solactive, HANetf *12 Month figures based on 01.07.20 - 30.06.21.

HAN-GINS Cloud Technology ETF (SKYY) enjoyed a strong gain of 4.99% in June and is up 35.22% over the past 12 months.  SKYY offers broad exposure to all key areas of the Cloud revolution – infrastructure, security, platform and software – as a service.

Gaming and online Video streaming continues to boost cloud usage, with Gaming already triple the size of Hollywood’s Box office.

Standouts performers for June are Nvidia, Cloudflare, Cloudera, Nutanix, Qad and Medallia, all gaining 20%+ for the month.  Cloud security firms have benefited from the increased spending following the growing number of cybersecurity/hack attacks. 

For YTD (2021), leading contributors were Alphabet (Google), Nvidia, Intel, Fortinet & Tera data.  Tera was up 122.4% YTD largely due to its transformation into a recurring revenue Cloud play (from a transactional business).

Cloud firms involved in the detection and prevention of major cyber attacks are increasingly acquisition targets too for the large Cloud platforms run by AWS, Azure and Google. 

Big Tech giants are expanding the Cloud reach into the fast-growing Healthcare sector, as hospitals increasingly switch to remote services, Wearables 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.  

Past performance is no guarantee of future performance. Source:  Solactive. Data as of 30.06.21

HAN-GINS Cloud Technology UCITS ETF Performance (As of 30.06.21)

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. Past performance is no guarantee of future performance. Source of all data: Solactive/ HANetf as of 30/06/2021

Industry News

According to Gartner, global public cloud spending is forecast to reach $332.3 billion in 2021, increasing by 23.1% from $270 billion in 2020.[5] Cloud growth benefiting from increased adoption across technologies such as virtualization, edge computing and containerization.

Global Public Cloud Services End-User Spending Forecast (US$mn)

Based on projections from the IDC, worldwide spending on public cloud services and infrastructure is forecast to double over the next five years. Growing from a $229 billion run rate in 2019 to almost $500 billion by 2023.[7] 

This IDC report confirms SaaS as the largest spending category, representing over half of all public cloud spending.  IaaS is reported as the second largest spending category and is the fastest growing with a projected five-year CAGR of 32.0%. PaaS is the lowest spending category, with the second largest five-year CAGR of 29.9%.[8]

Canalys reports that Infrastructure services (IaaS) spending grew 35% to US$41.8bn in the first quarter of 2021. The fast-growing corporate trend of using Cloud for data analytics and machine learning, data center consolidation, application migration, cloud native development and service delivery is boosting spending.[9] 

Total customer spending exceeded US$40bn for the first time in Q1, almost US$11bn higher than in Q1 2020 and nearly US$2bn more than in Q4 2020, according to Canalys. The flexibility of Cloud contracts and improved US COVID situation has increased corporate confidence in committing to multi-year contracts.[10]

Amazon Web Services (AWS) was the leading cloud service provider in Q1 2021, growing 32% on an annual basis to account for 32% of total spend.[11] 

Microsoft Azure grew 50% for the third consecutive quarter, reaching a 19% market share in Q1 2021.[12] Growth was boosted by cloud consumption and longer-term agreements client commitments.  Interestingly Azure also  introduced new industry clouds offerings - for financial services, manufacturing and non-profit organizations, adding to healthcare and retail. 

Google Cloud grew 56% in the latest quarter (7% market share), benefiting from its Google One approach driving cross-sales.  It launched a new cloud region in Israel.[13]

For illustrative purposes only. Source: https://canalys.com/newsroom/global-cloud-market-Q121

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[14] will utilise public cloud platforms and 25% of developers[15] will use serverless. Cloud native technology is driving enterprise digital transformation strategies. 

Constituent News

Our Cloud Technology ETF is now even more representative of the Cloud theme globally, with 75 holdings, 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 changes, ensures SKYY’s broader holdings mirror 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 follows UN Global Compact rules (excludes controversial weapons, fossil fuels etc).
• SKYY is globally diversified - US exposure 77.2%, followed by China 7.8%, Israel 3.6%, Germany 2.8% and Japan 2.2%. 
• Amazons’ AWS generates over 50% of group profits now (see chart).

Outlook

The majority of IT corporate spend is moving away from onsite hardware and servers to remote Cloud usage.[16]  Data centre chip revenues and Hyperscale Cloud have seen significant revenue boosts during COVID. 

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. 

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