Nasdaq Trade Talks - How to Gain Targeted Cloud Exposure

Jill Malandrino: Welcome to Nasdaq Trade Talks. I'm Jill Malandrino, Global Markets Reporter at Nasdaq.

One thing we have learned as a result of working from home due to the COVID-19 lockdown is the value of cloud computing and being able to operate virtually. Joining me via Zoom, a cloud company, and how I am able to consistently produce Trade Talks content in a remote environment, we have Kara Marciscano, she's a Senior Research Analyst at WisdomTree, to discuss how to get targeted cloud exposure for your portfolio. Kara, welcome to Trade Talks.

And cloud computing companies have been the darlings of the work from home trade as their growth has been accelerated because of the COVID-19 lockdown, and investors want to tap into that. Tell us about the WisdomTree Cloud Computing Fund. 

Kara Marciscano: Thanks so much for having me today. Yes. The cloud industry has been a stellar performer so far, year-to-date. The WisdomTree Cloud Computing Fund, which we launched in September 2019, the ticker is WCLD, was licensed from the BVP Nasdaq Emerging Cloud Index. So, last year when we launched this fund, we saw the combination of a leading venture capital firm with Bessemer Venture Partners and a world class rules-based indexer with Nasdaq is a really unique and powerful combination, and we wanted to bring this in to an investable product through an ETF. So, the selection criteria that BVP and Nasdaq had sort of outlined for the index is really unique. And they're looking for the fastest growing pure-play cloud computing firms out there. So, it's the only ETF out there that screens for things like revenue growth and for pure-play cloud exposure, so, for companies that are generating 50 percent or more of their revenue growth from the cloud industry. And when you take all of those screening criteria and how that applies to WCLD and look at the fundamentals of WCLD, it's so rapidly growing. If you look at the revenue growth of these companies on a weighted average basis, they've been growing 40 percent almost annually, their top line. And that's triple the growth rates that you're seeing from things like the Nasdaq 100, the S&P 500 or just broader info-tech. So, truly the fastest growing part of tech out there, and as far as some of the other unique fundamentals that we're seeing in WCLD, you know, from an investment standpoint, it's a very cheap cloud computing ETF. It's the cheapest one out there by 15 basis points. It's equally weighted, so you're going to have less concentration in the top names in the top 10 holdings, and you're also going to get less overlap with benchmark indexes. And that's, first of all, do it due to the pure-play exposure. So, WCLD won't own things like the fangs because those companies aren't fully dedicated to pure-play cloud exposure. 50 percent or more of the revenue isn't coming from the cloud computing industry, and by not market cap weighting or holding those names, you're going to have less overlap with things like the S&P 500 and less concentration risk at the very top. So, it's a very, very unique facet of 52 stocks and we're really, really happy with how it's performed this year. 

Jill Malandrino: Well, Kara, let's talk about WCLD performance and the recent results of some of the work from home stocks. 

Kara Marciscano: Sure. So, you know, off the bat, WCLD is the top performing U.S. tech ETF out there, year-to-date, according to Morningstar. Relative to benchmarks for growth tech and you know, broadly, U.S. equities WCLD is outperforming anywhere between 15 percentage points to 30 percentage points. The S&P 500 is still in negative territory and WCLD is up over 40 percent year-to-date. So, the first question we usually get from investors is, you know, is this performance validated? And over the past few weeks, we've had results come out and some of the financials that are coming out are really validating what's been happening in the market. So, we had companies like Zoom have a blowout quarter, Twilio have a blowout quarter, and all of the sort of narrative that you're getting from these CEOs of these companies is projects that were typically taking, you know, two years to complete, are now being rapidly implemented over weeks and that's due to the coronavirus pandemic. So, this shift to remote work, the shift to digitizing your business, has rapidly accelerated the adoption of cloud computing. Not only in the technology industry, but out of the technology industry, so this really has been a catalyst for these companies, and that's why you're seeing this really strong performance year-to-date. 

Jill Malandrino: And, Kara, it seems as if these trends are here to stay because we understand what work from home looks like, we understand how productivity has multiplied across the board, so it seems as if this isn't just a COVID-19 trend, but something longer term that that companies are going to implement as their strategy going forward, as we potentially might have hybrid rolls of working from home or splitting our time. 

Kara Marciscano: Yes. Absolutely. So, Shopify is a great example of one of the companies that's in WCLD and also in the index, that has predicted that the future of work is going to be 100 percent remote. So, some of the conversations that we've been hearing is that this hybrid model between, you know, half of your workforce working remotely and half of your workforce working in an office is actually not ideal. What you should commit to is either one hundred percent in-office or 100 percent remote. And right now, the most feasible is 100 percent remote, so a company like Shopify has committed, about a month ago actually, to being 100 percent remote. So, we don't think if this is a a short-term sort of catalyst. If you think about WCLD as a strategy, a thematic strategy, so it's meant to capture this long-term strategic shift from the way that we're processing, storing and managing data, moving from on-premise or in the office or at home to be doing it completely distributed from where the actual servers are that manage and process and store your data. We thought that was going to be something that happened over decades, right, but this pandemic has sort of accelerated this. So, yes, definitely there's a short-term catalyst, but this is going to happen over many, many, many years, but it is happening faster than I think we expected or probably BVP expected because no one was really expecting a worldwide pandemic to be forcing us to be working remotely. But, you know, outside of just this wave to remote work, which I think is, you know, we're in now, cloud computing technology hasn't really scratched the surface when you think about sectors outside of the information technology sector, so things like driverless cars and health care, all of those are ripe for digitization. So, even though remote work is a hot topic right now, after this wave kind of goes through over the next maybe five years, there's still a lot of growth there for cloud computing. So  it's based on a long-term strategic shift, so if you're an investor that believes that one remote work is probably here to stay and that over time, digitization of businesses, not only info-tech businesses, is going to occur, then WCLD is the right place for you. It's thematic, so it's not about timing the market, it's not about a specific sector or a valuation metric. It's thematic.

Jill Malandrino: Yeah, Kara, certainly an exciting sector to watch for sure. Thank you so much for joining us on Trade Talks.

Kara Marciscano: Thanks so much for having me.