Index Insights
Cloud Services Outperformed Cloud Software in 2021
A thematic index from Morningstar has demonstrated that, when investing in companies benefitting from the cloud computing migration, service providers rather than software developers have shown markedly stronger performance in recent years.
The Morningstar Global Digital Infrastructure & Connectivity Index rose 33.2% in 2021 versus 18.3% for the Morningstar Global Markets Index. For comparison, in 2021 the ISE CTA Cloud Computing Index delivered a 10.5% total return and the Indxx Global Cloud Computing Index delivered just a 2.7% net total return.
How can three indexes covering a similar market niche have such different performance? While most indexes focusing on cloud migration measure a broad cross-section of companies in this arena, Morningstar’s index is unique in that it includes only those that provide IaaS (Infrastructure as a Service) and 5G technologies while not including the software developers that adopt these technologies. This results in a more concentrated focus on companies that facilitate the development of cloud infrastructure by providing equipment such as servers, switchers and network access.
Andrew Lane – Director of Equity Research, Index Strategies, Morningstar Research Services, LLC:
“The Morningstar Digital Infrastructure & Connectivity Index, which identifies companies using research from Morningstar’s Equity Research team, intentionally excludes SaaS (Software as a Service), companies, focusing instead on the provision of “digital infrastructure.” The result has been a focus on companies providing the ‘picks and shovels’ to drive the cloud migration rather than downstream software providers. As a result, in 2021 the index held high-performing digital infrastructure players like Fortinet, Marvell Technology and Arista Networks while avoiding certain underperforming SaaS-oriented companies like Zoom Video Communications, Coupa Software and Splunk.”
Morningstar Global Digital Infrastructure & Connectivity Index: Top 10 2021 Holdings, Active Return
Source: Morningstar Indexes. Investment research is produced and issued by subsidiaries of Morningstar, Inc., including, but not limited to, Morningstar Research Services, LLC, registered and governed by the U.S. Securities and Exchange Commission. The Morningstar Digital Infrastructure & Connectivity Index is created and maintained by Morningstar, Inc.
Jeff Spiegel, US Head of BlackRock Megatrend, International and Sector ETFs at BlackRock:
“We are incredibly excited about the long-term, structural implications of cloud and 5G adoption. While the start of the pandemic focused on continued functioning in lockdowns, we see the digital transformation accelerating in 2022 as companies complete their migration to the cloud. With this acceleration, we see strong growth potential for enabling technologies like cloud computing, data infrastructure and analytics as well as opportunities for a new generation of companies to help their customers digitally transform.”
To speak with Andrew Lane, contact Tim Benedict at (203) 339-1912 or tim.benedict@morningstar.com.
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