ETF vs ETF: Cloud — SKYY vs WCLD

Two “cloud” ETFs — why did five years send them in opposite directions?

Search for “cloud ETFs” and SKYY and WCLD come up side by side.

Both say they invest in cloud computing, and their monthly returns have a correlation of 0.92 — they rise and fall in nearly the same months. They also share 40 holdings.

Yet from September 2021 to September 2026, their results were completely different.

SKYY +51.0% vs WCLD −33.3%.

Two ETFs wearing the same theme label: one grew to 1.5 times the money, the other lost a third of it.

More interesting still, the gap didn’t come from one or two events. SKYY came out ahead in all six years from 2021 to 2026.

What split them?

First, we set the terms of the comparison.

Both ETFs use 61 month-end observations of adjusted prices (distributions reinvested) from September 2021 to September 2026. The risk-free rate behind every Sharpe ratio is the same, too: the U.S. 13-week T-bill at 4.00% a year.

Next, let’s look at what each ETF holds.

The names match, but the way they define “cloud” differs.

SKYY scores each company’s cloud business: 3 points for infrastructure that rents out servers, storage and networks (IaaS), 2 for development platforms (PaaS) and 1 for software (SaaS).

WCLD, by contrast, picks emerging companies that sell software over the cloud and holds them in equal weights.

Put simply, think of the cloud as a building: the question is whether you hold the landlords and builders too, or only the tenants.

SaaS companies like Salesforce and Datadog run their services in data centers rented from Amazon, Microsoft and Google.

WCLD centers on these “tenants.”

SKYY adds the “landlords and builders”: data centers, servers, storage and networks.

The two ETFs share 40 holdings, which make up 51.0% of SKYY’s assets and 61.5% of WCLD’s.

The rest is different.

SKYY’s remaining 49.0% includes Everpure, Arista Networks, Alphabet, Microsoft, Amazon, IBM, Oracle, CoreWeave, Cisco, HPE, Dell, NetApp and others.

Both are “cloud ETFs,” yet nearly half of their portfolios are different.

So did that difference show up in their results?

Start with the five-year scorecard.

What stands out isn’t just that SKYY earned more.

WCLD swung more and still earned less.

Compound annual returns were +8.44% for SKYY and −7.67% for WCLD, and their Sharpe ratios split 0.28 to −0.25.

But the two weren’t this different from the start.

Both peaked in October 2021, fell together through the 2022 rate hikes, and hit bottom at the same time, in December 2022.

Their maximum drawdowns, −48.9% for SKYY and −59.9% for WCLD, both came close to halving the money.

The real difference came after that.

From the December 2022 low, SKYY rebounded +184.7%. WCLD managed only +61.9%.

SKYY regained its previous high in November 2024 and set new highs in 2026. WCLD, meanwhile, slid back near its 2022 low in April 2026 and still sits about 35% below its 2021 peak.

They fell together, but recovered differently.

So when did the gap start to build?

Break it down by year and the answer is surprisingly simple.

Six years, six wins for SKYY.

But it didn’t dominate every month.

SKYY was ahead in 38 of 61 months — about six in ten.

In other words, it didn’t win big every time; a slightly better hit rate piled up year after year.

And compounding turned that small edge into an 84-point cumulative gap after five years.

The widest gap came in 2024, when the two ETFs’ annual returns differed by 28.5 points.

That was when AI data-center investment took off and infrastructure companies — servers, storage, networking — took the spotlight.

This is where the index rules we saw at the start begin to matter.

Even within the same cloud theme, whether a fund was exposed to software or to infrastructure began to drive the difference in results.

But were the two ETFs really such different assets in style?

Let’s check with factors.

The Fama–French five-factor model breaks stock returns into five common drivers: market, size, value, profitability and investment.

Put both ETFs through the model and the similarities show first.

Value betas are −0.58 for SKYY and −0.63 for WCLD, and profitability betas −0.72 and −0.91.

Both show a classic growth-stock tilt, moving like tech stocks valued more on future growth than on today’s earnings.

The differences are clearer in market and size.

SKYY’s market beta of 1.01 means it moves much like the market, and its size beta of −0.23 leans toward large caps.

WCLD, with a market beta of 0.78 and a size beta of +0.39, leans relatively toward small and mid caps.

The difference in index rules shows up in the factors, too.

Can this difference also explain the 84-point cumulative gap over five years?

This time we regressed the monthly return difference between the two ETFs, SKYY − WCLD, on the five factors.

The result was surprising.

The average annual gap was +14.4 points.

But market, size and the other factors explained only +5.5 points of it.

The remaining +9.0 points went unexplained by the five factors.

The model explained only 24% of the gap’s swings (R²).

Of course, these +9.0 points shouldn’t be read as “true alpha.” The p-value is 0.09, which is not statistically significant at the 5% level.

But one thing is clear.

Common factors like company size or a growth tilt can’t fully explain the difference between the two ETFs.

So where does the rest of the difference lie?

Time to set the factors aside and open the actual baskets.

Start with the stocks both ETFs hold.

They’re 40 SaaS companies such as Salesforce, ServiceNow, Datadog and CrowdStrike.

The median five-year return of these shared stocks was −30.3%.

WCLD puts 61.5% of its assets in them and fills the remaining 38.5% with similar SaaS companies such as Okta, Palantir and monday.com.

That group’s median five-year return was −20.7%.

SKYY, on the other hand, puts about half its assets in the shared SaaS names and fills the other half with entirely different companies.

This is where the difference becomes clear.

The 25 stocks only SKYY holds include server, storage and networking companies such as Dell, Arista Networks, Everpure and HPE.

This group’s median five-year return was +47.3%.

Individually, they include Dell +1,099%, Arista Networks +782%, Everpure +406% and HPE +377%.

On WCLD’s side, by contrast, software companies kept struggling: BILL Holdings −84%, UiPath −80%, monday.com −79%.

In the end, what split the two ETFs wasn’t who picked the same SaaS companies better.

Their shared holdings overlapped to a large extent.

The real difference lay in SKYY’s “other half.”

SKYY’s index gives 3 points to cloud infrastructure, 2 to platforms and 1 to software.

Because of that rule, SKYY took in server, storage, networking and big-tech companies that WCLD doesn’t hold at all.

And 2021–2026 was exactly when that infrastructure came to the fore.

They carried the same cloud label, but one index centered on companies that sell software on top of the cloud, while the other also held the infrastructure that builds the cloud.

That difference was a key driver of the gap over these five years.

Risk shows the same difference

Beyond returns, let’s look at the portfolios’ risk structure.

Individual stocks weren’t very different in volatility: weighted average stock volatility was 49.4% for SKYY and 50.5% for WCLD.

The difference was how similarly the stocks moved.

WCLD’s average pairwise correlation was 0.36, higher than the 0.31 of SKYY, which mixes hardware, internet and software.

Gather only similar companies and, however many stocks you hold, more of the portfolio moves together.

As a result, the diversification effect was 45.9% for SKYY and 39.4% for WCLD.

In other words, WCLD holds 65 stocks, but because they all move in a similar “cloud software” direction, its risk isn’t diversified as much as the stock count suggests.

Here, too, the index design we saw at the start shows up again.

What a fund defines as the theme, and what it leaves out, shaped not only its returns but its risk structure.

Today’s growth differs, too

Current fundamentals reveal one more difference.

The weighted median of latest-quarter revenue growth was 23.3% for SKYY and 17.6% for WCLD. Operating margins were also higher for SKYY, 10.4% vs 5.3%.

Companies with negative operating cash flow were only about 2% of either fund.

So the gap is hard to explain simply as “WCLD held lots of money-losing growth stocks.”

In this period, as AI infrastructure demand grew, the cloud’s center of growth shifted from software toward infrastructure, and SKYY’s index rules left it more exposed to that shift.

Mix the two half-and-half in DIVA’s Markowitz analysis and volatility comes out at 28.1%, just 2.1% below the simple average of the two (28.7%). Blending two assets with a 0.92 correlation isn’t diversification — it’s just adjusting a ratio. No surprise, since SKYY already holds many of WCLD’s core names. To take risk out of a cloud bet, pair it with something that doesn’t look like the cloud, not with another cloud ETF.

The numbers all point one way. A 0.92 correlation and twin growth-and-profitability styles — yet +51.0% vs −33.3% over five years, with two-thirds of the gap outside the factors. Open the baskets and the reason is simple: the SaaS stocks both funds share lagged (median −30%), and SKYY’s infrastructure half more than made up for it (+47%). One index read “cloud” as the companies that build it, the other as the companies that sell on top of it — and that one line of definition decided five years.

That doesn’t make SKYY “the better ETF.” These five years saw software cool while infrastructure ran hot, and when the wind turns, the same rules work in reverse. Outside our sample, in 2020, when remote work put SaaS in the spotlight, WCLD returned +109.7% and beat SKYY (+57.8%) by 52 points. What matters is knowing which wind your ETF is built to catch before you buy it. Check these three things before choosing a theme ETF.

Everything here came from public prices, published holdings and two models. If you’re weighing two similar-sounding theme ETFs, run them side by side in DIVA Quantizer. If their factor styles match but their results don’t, the difference is likely hiding in the index rules.

Sources: First Trust — SKYY holdings and index description (2026-09-30). WisdomTree — WCLD index description and top holdings (2026-09-29). Nasdaq Global Indexes — BVP Nasdaq Emerging Cloud Index constituents (2026-09-30). Prices and fundamentals from yfinance; factors from the Kenneth French Data Library (North American five factors); risk-free rate is the U.S. 13-week T-bill (^IRX, 4.00% a year). All risk and factor metrics are DIVA Quantizer Markowitz and Fama–French model output.

This article was written with the help of AI.