Amazon.com Inc. (Nasdaq: AMZN) made headlines a few days back when it revealed first-quarter cloud sales of $1.56 billion.

That’s a stunning year-over-year gain of 49%. And AMZN stock has seen a 71% surge since Jan. 2, 2015. CEO Jeff Bezos says his company’s cloud-based Amazon Web Services will likely be a $5 billion business this year.

[ad#Google Adsense 336×280-IA]I always recommend that you focus on growth, but in this case, I believe there is more stable and affordable way to play the cloud.

After all, Amazon’s profits dipped in the first quarter – and the e-commerce site’s stock remains a tad volatile.

No doubt, Amazon’s and the overall market’s swings can be unnerving and lead some investors to want to throw in the towel.

However, you won’t be doing that after you learn more about the upside I see in three of tech’s hottest sectors, including cloud computing, for the rest of the year.

Today I want to show you how to play them in ways that will beat the market – and help you sleep at night…

Beating the Odds

At the end of last year, I forecasted a strong year for tech stocks.

And that’s exactly how events have played out. Since Jan. 1, the Nasdaq Composite Index is up 7.1%, more than doubling the return of the Standard & Poor’s 500 Index.

At the time, I also said to make market-trouncing gains, you have to “be a ‘stock-picker’ winner.”

However, as much as I love growth stocks like Amazon, I very much believe in taking a balanced approach to creating tech wealth.

That means besides picking market-beating stocks, we also need to find great exchange-traded funds (ETFs) that we can count on for years to come.

In fact, ETFs are a great way to play the choppy markets we’ve been seeing all year. They allow you to focus on rapidly growing tech sectors and give you diversification – meaning your risk is spread out among dozens of companies.

In other words, through ETFs we can put entire tech sectors and dozens of companies to work for us. That way, if a few companies in a hot sector falter, the rest will carry the day.

Today, I’ve picked out three ETFs that I’m calling Diversification Profit Plays. You’ll want to hold for these for the long haul…

Diversification Profit Play No. 1: First Trust ISE Cloud Computing Index Fund

More than just about any tech industry leader, Amazon Web Services has juiced investors’ interest in cloud computing. And it’s done so simply by renting out the surplus capacity in its massive data centers.

However, like I said, the company’s shares are pretty volatile. And they’re pricey, at nearly $433 per share.

The ETF I want to tell you about trades at just 7% of that – and it gets you into dozens of companies banking on the cloud.

Here’s why we like cloud computing – that is, when businesses, universities, nonprofits, and other enterprises store their software and data on the Internet (the “cloud”) and then access it from there as well.

According to a study from Goldman Sachs earlier this year, spending on cloud computing infrastructure and platforms will grow at a 30% compound annual growth rate (CAGR) from 2013 through 2018, compared with 5% growth for the overall IT market. And Forrester Research forecasts global cloud software to reach $106 billion next year. That’s 21% over expected 2015 spending.

Priced at just $30, the First Trust ISE Cloud Computing Index Fund (NYSE: SKYY) holds 39 companies. Those holdings include Amazon, the world’s biggest cloud provider, and Microsoft Inc. (Nasdaq: MSFT), which in the first quarter doubled its cloud sales to $1.5 billion.

We get both these winners and a whole lot more for our money.

  • Apple Inc. (Nasdaq: AAPL). The iDevice King owns the popular cloud-based iTunes store and offers storage through its iCloud. Plus, millions of people worldwide use their iPhones to access the cloud. Apple’s most recent quarterly earnings were up by 33%.
  • Adobe Systems Inc. (Nasdaq: ADBE). Known for its Photoshop software, the company is converting to a cloud-based subscription model rather than selling shrink-wrapped software to customers. In its most recent quarter, Adobe added 517,000 cloud clients, an annual increase of 28%, helping it to increase earnings by 78%.
  • Red Hat Inc. (Nasdaq: RHT). This is one of the leaders in providing open-source software that can be accessed and managed via the cloud. Red Hat has 14% operating margins and generates $388 million in free cash flow.

Diversification Profit Play No. 2: Emerging Markets Internet & E-Commerce ETF

While many investors are worried about slowing growth in China, I think now is a great time to invest in select Chinese tech firms before Wall Street wakes up to the fact that the world’s most populous nation remains a great long-term play.

After all, China is still growing at roughly 7% a year. That means the economy is doubling every decade.

And the Emerging Markets Internet & E-Commerce ETF (NYSE: EMQQ) will deliver patient investors plenty of upside.

The more than 40 companies, all based in emerging economies but most in China, that comprise EMQQ are growth machines. Their sales are advancing at a CAGR of 45%. Some top names in the fund include:

  • Alibaba Group Holding Ltd. (NYSE: BABA). The Chinese e-commerce giant is the largest member of EMQQ and accounts for 6% of its holdings. Last year, Alibaba was the source of the largest initial public offering (IPO) in U.S. history, worth roughly $25 billion. Alibaba has grown sales at an average rate of 58% over the last three quarters.
  • Tencent Holdings Ltd. (OTCMKTS ADR: TCEHY). In addition to offering online payments, advertising, and video, Tencent dominates social networks and mobile gaming in China. These two areas helped it beat on sales and earnings in the March quarter. Tencent has a $195.8 billion market cap and 33% operating margins.
  • JD.com Inc. (Nasdaq ADR: JD). If you’re looking for a company that rivals Alibaba for the title of “Amazon of China,” then JD.com is as close as you’ll come to finding it. JD runs one of China’s leading online retail operations, backed by more than 100 warehouses and thousands of delivery vehicles. With a $46.83 billion market cap, it has a three-year sales growth rate of 75%.

Launched in November, EMQQ is a new fund and trades at just $26.21 a share. It’s poised for a rally and has already gained 12.8% in the past three months.

Diversification Profit Play No. 3: SPDR S&P Semiconductor ETF

Now, if you want a near-perfect barometer for the health of the entire global tech ecosystem, then you should look at the semiconductor industry.

That’s because microchips power the devices that have become integral to our way of life. We’re talking everything from huge server farms and robotic-driven factories to your car and thermostat. And of course, they’re still plenty of them in your laptop and smartphone.

And the chip industry keeps on growing. According to the Semiconductor Industry Association, global first-quarter chip sales rose 6% to $83.1 billion.

The SPDR S&P Semiconductor ETF (NYSE: XSD) holds more than 45 chip firms that cover nearly every aspect of the industry. These include:

  • Micron Technology Inc. (Nasdaq: MU) is a global leader in computer memory systems. Its Hybrid Memory Cube moves data 15 times faster and takes up 90% less space than most of today’s memory modules. Micron has a market cap of $28.5 billion, and its most recent quarterly earnings were up 28% from a year ago.
  • Skyworks Solutions Inc. (Nasdaq: SWKS) ranks as a force in the mobile and broadband sectors. With Skyworks, thanks to its broad range of clients, you also get in on the defense, healthcare and automotive sectors. The company more than doubled its earnings per share in the most recent quarter.
  • Avago Technologies Ltd. (Nasdaq: AVGO) is a big beneficiary of its association with Apple. The company makes a wide range of chip-based filters and is an Apple supplier. Last year, Apple accounted for 10% of the Singapore-based firm’s revenues.

Almost by definition, each of these ETFs offers stability.

However, you get a lot more than that with these three because of the hot sectors they cover – the cloud, emerging markets and semiconductors.

In other words, while SKYY, EMQQ and XSD are great plays right now, they’re also the kinds of investments you’ll want to own for the long haul.

And a great way to do that is to buy a little on a regular basis.

By dollar-cost averaging these ETFs, you’ll continue to build your wealth steadily along the way.

— Michael A. Robinson

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Source: Money Morning