Long Term Stocks/ETFs for Tech/Cloud

RolandFlagg

I'm not going to lie. I like tech. I like cloud. I'm not an expert but I think anything along those lines will outperform the market long term.
Thing is, all the ETFs I have are heavily biased towards the the FANG stocks, and have only a tiny exposure to other long term stocks I like such as Chegg, Qualcomm, Skyworks, Nvadia etc.
Best to buy stocks in those companies to add to my ETFs or are there any ETFs out there that have higher exposure?
The few ETFs I've looked at are First Trust Cloud ETF (SKYY), Wisdom Tree Cloud (WCLD), and Investo QQQ.
I'm sure I will get some hassle about how heavily tech weighted my portfolio is, but that is my view and I'm sticking to it for the next 10 years at least.
So if anyone has taken a similar view, it would be interesting to know the stocks and funds you have found and invested in (I'm sure we are all looking for the next Apple or Netflix)
Cheers.

Prism

The cloud is and will continue to be one of the biggest drivers in growth over the coming years even though it has been going for many years now. The main reason that the ETFs have heavy exposure to Microsoft, Amazon, Salesforce and Google is simply because these are the biggest cloud companies by a long way so you may have to look for individual stocks or active funds if you want to emphasize smaller companies. The problem is though that every tech company is becoming a cloud company so its going to end up being simply invested in tech plus selective communications companies like Google and consumer companies like Amazon.

RolandFlagg

Thanks for the reply Prism.
I really like cloud and 5G long term, but getting exposure to those companies will probably mean buying the stock, as a lot of tech ETFs in the UK are pretty much all about the usual suspects.

bowlhead99

If you are looking for the 'next big thing' I'm unconvinced that buying something like a Nasdaq100 tracker (which at the end of March was 67% IT and communications but may be more at the moment) is the way to go about it, because what you get with a market-cap weighted tracker is a high allocation to those companies which are the *current* microsoft, apple, facebook, netflix and a really small allocation to whatever might be the 'next' microsoft, apple, fb, netflix etc.  From the March factsheet for QQQ, over 50% of its value was in the top 9 companies and the other <50% spread over the 90+ smaller ones.

Really with QQQ what you are relying on is the big staying big and getting even bigger by acquiring any other good company that comes along before it gets to the point that its full potential is realised.   And you also find that a third of the portfolio is not tech or cloud related but is industrial, consumer discretionary, healthcare, staples etc. Just whatever sort of company finds Nasdaq to have convenient listing rules.

Still, allocating in a 'heavily weighted to big companies' manner via a 100-company tracker is probably a more balanced investment than allocating to a more specialist tracker that only has 110-20 things in it and would likely be even more volatile without necessarily having any better growth potential.  But your existing 'bias to the FAANG stocks' is there because those stocks are among the very biggest tech stocks.

While hyper-specialist ETFs such as 'cloud' or 'automation and robotics' can allow you to zero in on a real niche (and there are more of those available for the US retail investor market than we get over here in the UK), the use of an ETF - which generally allocate the most money to the existing biggest companies in the sector - for access to such sectors is not necessarily going to get you a great result.  For example actively managed tech funds (or even funds that aren't exclusively tech but currently have a lot of tech as part of their growth strategy, such as Scottish Mortgage Investment Trust) will attempt to sort the wheat from the chaff and have an opinion how a company's prospects might develop, rather than doing what a tracker does and "buy shares in this company because it exists and has 'cloud' in the company name". 

Many of the biggest companies in the tech space are listed in the US. However I would beware of products that focus mostly or exclusively on US indexes. For example the NASDAQ100 gives you Amazon and Facebook etc but doesn't give you anything in Tencent or Alibaba which are giants in a billion person market over in China. I have those two as separate holdings in my ISA/SIPP as I like them and have had some very nice returns even though at one point I thought I might have been too late to get on the bandwagon. But they are obviously already large allocations in some emerging markets funds and some of the tech-focused active funds - once you start looking at buying individual stocks for yourself , it can be difficult to keep up with developments to stay confident on why you want all these decent-sounding stocks over here instead of those other decent sounding stocks over there. I'm generally happy to let a fund manager do that for me.

webjaved

I've bought fractional shares in some of the tech giants for now on Freetrade. As for lumping everything on a tech ETF I wouldn't go down that route. That's my personal decision anyway.

RolandFlagg

Thanks for the replies.
How are you finding Freetrade?

OldMusicGuy

I took a quick look at the First Trust ETF, a few thoughts on that. You are doubling up on some FAANGs (you said you hold those already) because Amazon and Msft are big cloud infrastructure vendors so are quite big holdings in there. It's also "cloudy" rather cloud IMO because it's got stocks in there that are not "pure" cloud so their fortunes will be dictated by non-cloud factors. For example Oracle has done well to transition a lot of its revenue streams to the cloud but its database and hardware businesses have a big impact on stock performance. Similarly SAP is struggling getting its customers to transition to a new version of its legacy ERP system and that will impact its stock. Vendors like IBM and Micrsostrategy are not by any stretch of the imagination cloud vendors (ok they have a few fingers in some cloud pies). IMO it's a general tech fund with some smaller holdings in some pureplay cloud vendors rather than a "cloud" ETF. Nice marketing though.

It will probably do ok and doesn't look bad as a long term tech holding but I think the "cloud" is a bit of a misnomer. I'd expect to see bigger holdings of the likes of Salesforce, Workday, ServiceNow, Zoom etc in a cloud ETF.

AnotherJoe

OldMusicGuy said:

I took a quick look at the First Trust ETF, a few thoughts on that. You are doubling up on some FAANGs (you said you hold those already) because Amazon and Msft are big cloud infrastructure vendors so are quite big holdings in there. It's also "cloudy" rather cloud IMO because it's got stocks in there that are not "pure" cloud so their fortunes will be dictated by non-cloud factors. For example Oracle has done well to transition a lot of its revenue streams to the cloud but its database and hardware businesses have a big impact on stock performance. Similarly SAP is struggling getting its customers to transition to a new version of its legacy ERP system and that will impact its stock. Vendors like IBM and Micrsostrategy are not by any stretch of the imagination cloud vendors (ok they have a few fingers in some cloud pies). IMO it's a general tech fund with some smaller holdings in some pureplay cloud vendors rather than a "cloud" ETF. Nice marketing though.

It will probably do ok and doesn't look bad as a long term tech holding but I think the "cloud" is a bit of a misnomer. I'd expect to see bigger holdings of the likes of Salesforce, Workday, ServiceNow, Zoom etc in a cloud ETF.

My thought exactly, at least for Wisdom Cloud, it didnt seem to hold many if any of the biggies. No microsoft, amazon,Oracle etc.

And, there's at least two very different sorts of cloud, in fact I'll make it three.

Sort 1) There's infrastructure, such as Amazon, Microsoft, Oracle and a bunch of others. Essentially selling compute, what would 20 years ago have been servers or selling platforms on top of that, saya Linux instance or a Windows distance and so on.

Sort 2) Theres software application providers whose service runs on a cloud. Could be Salesforce, Oracle ERP, Workday etc.

Sort 3) people who call their stuff cloud, but its immaterial what it is and it might not be. 

And regards investing, well i can see why you'd invest in Sort 1. They are providing a service that is displacing traditional servers. A solid business. THough, how much of that business is pure clouda nd how much other things? Tough to untangle.

However, regards 2&3, i wouldnt invest in any of those just because of the cloud moniker.  All software (nearly) will be going cloud anyway, its inevitable, so why invest in (say) Salesforce or Oracle just because they've  got a cloud association? So will all their competitors.

OldMusicGuy

AnotherJoe said:

Sort 3) people who call their stuff cloud, but its immaterial what it is and it might not be.  

There are many vendors in that list who are "cloudwashers". And that's just what this ETF is IMO - a tech fund with "cloud" attached to it to attract investors..........

mark55man

can I ask what you all think of Janus Henderson.  It has a blend of bigger companies, and seems to go beyond FAANG although clearly they are there

https://cdn.janushenderson.com/webdocs/GTEOTI_GB0007698847_WEB100_M_31052020%28EN-GB%29.PDF

Prism

In any cloud specific fund I would expect to see reasonable allocations to Microsoft, Amazon, Google and Alibaba for the general purpose IT services and then Microsoft and Google (again), plus Salesforce, Adobe, Slack, Zoom, Workday, Intuit... 
The list when you include all of the Saas services could get pretty long as it could include any internet delivered service.