ETF of the Moment: Software Isn't Dead, Yet

Episode Summary

Executive Summary: The episode examines the “resurrection” of software and cloud-computing ETFs, focusing on Themes Cloud Computing ETF (CLOD). Despite fears that AI, macro weakness, and spending on AI infrastructure would hurt software, second-quarter earnings showed many holdings outperforming expectations, suggesting the sector’s selloff was overdone. The hosts argue investors may be underestimating software’s resilience and connectedness to cloud demand.

Main Topics: ETF of the moment methodology (Priority: 5/5): Joel Weber and Eric Balchunas explain how they identify emerging ETF trends using both quantitative signals (short-term returns and volume versus longer-term averages) and qualitative news relevance. Software sector resurgence (Priority: 5/5): The core discussion centers on the idea that software had been declared “dead” too early, but earnings strength and renewed investor interest are reviving the trade. Why cloud computing and software are linked (Priority: 4/5): The guests argue that cloud computing and software are highly interconnected because software firms are major users of cloud services, so weakness or strength in one tends to affect the other. CLOD versus broader software ETFs (Priority: 4/5): CLOD is contrasted with the larger, more established iShares software ETF IGV, with the hosts suggesting CLOD may be a cleaner thematic expression even if it is smaller and less well known. Earnings data versus market narrative (Priority: 5/5): Andre Yap argues that the market narrative around software’s demise was contradicted by earnings results, with a large majority of relevant holdings beating estimates. Small ETF, early-mover opportunity (Priority: 3/5): The episode emphasizes that small, less visible ETFs can be useful if they capture a theme early, though they may require limit orders due to wider spreads.

Key Arguments: ETF “momentum” can be detected before it becomes widely obvious by looking for short-term spikes in returns and volume relative to history. Software was sold off because investors feared AI would reduce licensing demand, cloud/software firms would spend heavily on AI with unclear ROI, and the macro environment pushed markets toward risk-off positioning. Those fears appear overstated because second-quarter earnings showed software and cloud companies performing strongly. CLOD is presented as a compelling thematic ETF because it contains a high concentration of software and cloud-related names that are operationally linked. The top holdings’ earnings performance undermines the claim that software is structurally broken. Investors often overreact to disruptive technology narratives, but smart companies adapt; the hosts compare this to how stocks eventually recovered after fears that Amazon would destroy brick-and-mortar retail. Small thematic ETFs can be overlooked, yet they may offer earlier access to emerging trends and niche exposures not captured by the most popular funds.

Data Points: Cloud ETF ticker: CLOD - Themes Cloud Computing ETF discussed as the “ETF of the moment” Portfolio concentration: Top 20 holdings = about 80% of portfolio weight - Shows CLOD is highly concentrated Software exposure within holdings: About 70% - Share of holdings classified as software companies by GICS Holdings beating earnings: About 93% - Of the software companies in the ETF that reported, they beat earnings expectations CLOD performance since end of Q1: Up about 20% - Performance cited as evidence of a turnaround SMH performance: Up 58% - Semiconductor ETF used as a comparison to show dispersion within tech AUM: About $2 million - CLOD described as a very small ETF Industry comparison ETF: IGV - iShares software ETF cited as the more familiar alternative Theme ETF count: 20 to 30+ - Hosts note there are many cloud/software theme ETFs on the market DRAM example: Identified one month before launch - Used as a prior example of finding ETF themes early

Pivotal Quotes: "We want to catch a wave before it's a wave." — Eric Balchunas: Explaining the ETF-of-the-moment screening process "The narrative that software is dead, I think the numbers kind of defy." — Andre Yap: Summarizing why earnings data contradicts the bearish story "Sometimes it just pays to have a little dumb-dumb dijen and just be like, you know, this is good. You know, stay long." — Eric Balchunas: A colorful argument that investors can overcomplicate simple fundamentals

Implications: Listeners should not assume software is structurally broken just because AI is disrupting the tech landscape. If earnings stay strong, cloud/software ETFs like CLOD may have room to rerate, though investors should be mindful of small-fund liquidity and use limit orders.