Cloud Technology Monthly Report | June
- Cloud Technology continues to be a leading beneficiary of the Work From Home/Covid-19 global lockdown
- Companies continue to scale up their cloud usage and reduce their onsite hardware costs
- M&A activity in Cloud is the leading area of Tech acquisition activity.
HAN-GINS Cloud Technology UCITS ETF (SKYY) has continued to recover well in May, gaining 6.74%. This follows an impressive comeback in April gaining almost 12%. Its NAV is fast approaching an all-time high of $10/share.
For the 2020 year, returns are now 4.11%. Clearly the Work from Home behaviour following COVID-19 has led to a surge in demand for Cloud services globally - including video conferencing, remote office setups with VPN’s and telemedicine.
Over the past 12 months, SKYY has gained almost 27%. It has rebounded well form its March lows, wiping out all 1st quarter due to the COVID-19 crisis.
During this period, performance has been boosted by a broad of number Cloud providers across the entire Cloud ecosystem. This includes Infrastructure, Platform and Software – as a service companies.
In particular, stand out performers in May include:
- Splunk (32.4%), Fortinet (29.2%), Cloudera (23.8%) and NVIDIA (21.5%).
For the year to date 2020 leading performers in our portfolio include:
- Amazon (32.2%)
- Fortinet (30.4%)
- Splunk (25.0%)
- Equinix (19.5%)
- Microsoft (16.2%)
- Apple (8.3%)
- Alphabet (Google)
- Intel 5.2%.
Since early June, many of these gains have increased substantially. Source: FactSet/Solactive and Bloomberg Data as of 31/05/20
Continued rapid adoption of Cloud services has reduced spending on hardware and onsite premises – has provided a significant tailwind to SKYY’s portfolio of companies. Increased M&A activity in the Cloud space is expected to boost prices amongst midcap and smallcap names. Currently much of the recent recovery since March, has been led by Megacap names including Amazon, Cisco, Microsoft, Apple and Alphabet.
Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. 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. Source: Bloomberg Data as of 31.05.2020
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. 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. Work from home connectivity has helped fast-track adoption rates across a variety of cloud technology platforms.
Cloud providers, covering Software (SaaS), Platform (PaaS) and Infrastructure - as a Service (IaaS), are mostly benefiting from increased online traffic and cybersecurity needs. Growing usage of cloud-based programs such as Google Meets and Microsoft Teams (video conferencing), Slack (email/work chatrooms), LogMeIn (remote access) and AWS (remote server usage) - are powering this as remote working has become essential.
The ease of cloud technology will help ensure many of these remote behaviours will likely become permanent fixtures for teleworkers and schools too - well beyond just COVID-19. Cloud’s pricing flexibility – using a subscription based model has allowed many enterprises make the shift amidst the COVID-19 crisis. 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, the simplification of upgrades and updates. This allows enterprises to scale technology and services in line with their business growth.
Ultimately, the economic downturn has shown far less computer expenditure on hardware, while cloud budgets have continued to grow. The use of cloud technology means enterprises now require fewer IT staff and hardware servers to be physically present on their premises – as companies increasingly use remote servers and related third-party IT functions.
Cloud infrastructure has spread globally – via the likes of giants Amazon Web Services, Microsoft’s Azure and Google Cloud. This is ensuring that cloud-based software services (SaaS) run by the likes of SAP, Salesforce and Oracle are becoming increasingly accessible globally, including for many smaller enterprises.
By every measure including Tech M&A activity – it is the key current battleground being fought over by Big Tech. By some estimates (Gartner) – almost 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. In the medical space Cloud Technology has also become increasingly important in powering such areas as telemedicine, robots, chatbots, AI diagnostic machines and wearables.
Below we highlight some of the best performing holdings in SKYY:
Splunk Inc. is a US company producing 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.
The major shift to working remotely had resulted in increased demand for Splunk’s cloud-based offerings including ‘Remote Work Insights’ (RWI), which was launched in March. 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.
As the world goes digital, big data is only getting bigger. This means making sense of that data is also growing. Splunk is well placed to benefit from this trend. Its May share price gain of over 30% also reflects that Google is one of Splunk’s largest customers – using its tracking and monitoring systems.
Fortinet has become a Cloud security leader - rapidly expanding their partner-focused Security-as-a-Service (SaaS) cloud offerings. Their FortiCloud solutions now provide the industry’s most extensive security collection of Management-as-a-Service (MaaS) and SaaS services. The breadth of services available provides Fortinet partners and customers the opportunity to select cloud security and management offerings that are easy-to-implement and scalable as their business grows. Their proprietary FortiASIC security processing unit (SPU) delivers 10 times the VPN (Virtual Private Network) capacity of comparable competitors that supports remote workers. This has led to a spike in demand for their services.
Seagate is seen as a leading indicator of Cloud spending and capital expenditure growth. Its clients include all the largest Cloud infrastructure provider (IaaS) – including Amazon. Google, Apple and Facebook. As the need for both hard disk and cloud storage dramatically increase, Seagate will benefit significantly. The growing demand for various gear used for cloud computing will help drive revenues. In the past few weeks its share price has gained approximately 10%.
Equinix, Inc. specialises in the confluence of internet connection, cloud technology and data centers. The company leads in global colocation data center market share, with 200 data centers in 24 countries on five continents. Its share price has gained 19.5% for 2020 (Source: Bloomberg, 31 May 2020).
Cloud Tech giants Amazon , Microsoft and Apple are all touching new highs, having recovered very well in May through early June.
Alphabet (Google’s parent) is within 5% of its record high. Apple is now worth almost $1.5 trillion. Amazon and Microsoft also powered above $1 trillion market caps recently.
Source: Bloomberg / HANetf. Data as of 31/05/20
HAN-GINS Cloud Technology ETF, is a UCITS compliant Exchange Traded Fund domiciled in Ireland.The fund 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.
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