Home News 3 Video Game ETFs for Q4 2022

3 Video Game ETFs for Q4 2022

by SuperiorInvest

The video game industry is massive and growing rapidly. According to the Entertainment Software Association, there were nearly 227 million video game players in America in 2021. That number rose during the COVID-19 pandemic as more people spiked their video game use while holed up at home. ESports, a relatively new class of spectator entertainment, has dramatically expanded the video game market. The eSports market will generate $1.1 billion in revenue globally in 2021. The market is expected to grow to $1.6 billion by 2024.

Investors looking to gain exposure to these video game trends can find several exchange traded funds (ETFs) which hold baskets of game shares. Some examples of video game companies include Electronic Arts Inc. (EA), Activision Blizzard Inc. (ATVI) and Take-Two Interactive Software Inc. (TWO).

Gaming ETFs initially focused on casinos and gambling companies, but have increasingly broadened their focus to own stocks of video game and eSports companies. While some ETFs hold shares of both video game and gambling companies, below we focus on funds dedicated specifically to video game companies.

Key things

  • The three video game ETFs that trade in the US are ESPO, HERO and NERD.
  • The top holding of the first ETF is NVIDIA Corporation, while Roblox Corp. represents the highest share of the following two funds.
  • All three of these video game ETFs have underperformed the broader market over the past year.

There are only three ETFs focused on the video game industry that trade in the US, with an exception inverse and leverage effect ETFs. The top performing video gaming ETF based on past year performance is the VanEck Video Gaming and eSports ETF (ESPO).

While many video game companies are considered part of communication services sector, there is no broad scale that specifically tracks the video game segment. However, all three U.S.-traded video game ETFs have significantly underperformed the broader market over the past year. Since August 18, 2022, all video game ETFs have posted total returns of around -20%, well below the S&P 500’s total return of -2.8%.

We examine three video game ETFs below. All numbers below are as of August 18, 2022. In order to focus on the funds’ investment strategy, the best holdings listed for each ETF exclude cash holdings and cash-purchased holdings securities lending returns except in unusual cases, such as when the cash portion is exceptionally large.

ETF with very low assets under management (AUM), less than $50 million, typically have less liquidity than larger ETFs. This may result in higher trading costs, which may negate some of your investment gains or increase your losses.

  • Performance in one year: -18.9%
  • Expense ratio: 0.55%
  • Annual dividend yield: 0.11%
  • Three-month average daily volume: 46,633
  • Assets under management: $340 million
  • Start date: October 16, 2018
  • Issuer: VanEck

ESPO tracks the MVIS Global Video Gaming and eSports Index, an index of companies involved in video game development, eSports and related hardware and software providers. The index only includes companies that derive at least half of their total revenue from video games and/or eSports. Communications services companies make up about three-quarters of the ETF’s invested assets, with information technology names making up most of the rest. Companies listed in the US represent more than 40% of the portfolio, followed by companies based in Japan and China.

The fund is largely comprised of large caps growth stocks. ESPO’s three largest holdings are NVIDIA Corporation (NVDA), a multinational technology company that designs graphics processing units (GPUs); Advanced Micro Devices Inc. (AMD), which produces semiconductors for various applications; and Activision Blizzard, a leading video game developer and publisher.

  • Performance in one year: -21.6%
  • Expense ratio: 0.50%
  • Annual dividend yield: 0.74%
  • Three-month average daily volume: 122,081
  • Assets under management: $201 million
  • Start date: October 25, 2019
  • Issuer: Mirae Asset Global Investments Co. Ltd.

HERO tracks the Solactive Video Games & Esports Index, which is designed to measure the performance of companies in the global video game and eSports markets. The ETF provides exposure to companies that develop or publish video games, are involved in content streaming and distribution, own and operate eSports leagues, or manufacture hardware for the industry. Over 92% of the fund’s holdings are in the communications services sector, with most of the remainder in the information technology sector. HERO also offers broad geographic diversification, with the US, Japan and China representing the top three geographic categories.

The fund focuses on growth stocks across the market capitalization spectrum. The top three HERO holdings are Class A shares of Roblox Corp. (RBLX), which operates an online entertainment platform; Unity Software Inc. (AT), creator of a platform for 3D content; and video game developer Take-Two Interactive Software Inc.

  • Performance in one year: -21.7%
  • Expense ratio: 0.75%
  • Annual dividend yield: 0.74%
  • Three-month average daily volume: 2,758
  • Assets under management: $65 million
  • Start date: March 8, 2016
  • Issuer: ETFMG

The first ETF focused on the video game industry since its launch in 2016, GAMR seeks to track the EEFund Video Game Tech Index. The fund includes companies from various segments involved in bringing video games into your living room, including game publishers and retailers, as well as game console and semiconductor manufacturers. In terms of country exposure, US companies make up around 30% of the fund’s portfolio, followed by companies based in Japan and Korea.

GAMR holds Class A shares of Roblox Corp., described above; Class A shares of GameStop Corp. (GME), a retailer of video games and gaming products that was recently at the center meme shares madness; and Unity Software Inc., also described above.

The comments, opinions and analysis expressed herein are for informational purposes only and should not be construed as individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information contained herein to be reliable, we do not guarantee its accuracy or completeness. The opinions and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analysis contained in our content are provided as of the date of publication and are subject to change without notice. The material is not intended to be a complete analysis of all material facts relating to any country, region, market, industry, investment or strategy.

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