This article is a part of InvestorPlace’s Best ETFs for 2018 contest. Robert Waldo’s pick for the contest is the ETFMG Video Game Tech ETF (NYSEARCA:GAMR).
My pick for InvestorPlace’s Best ETFs for 2018 contest is the ETFMG Video Game Tech ETF (NYSEARCA:GAMR), which is touted as “the world’s first video game tech ETF.” Last year, GAMR climbed more than 60%, and I believe this growth-based exchange-traded fund will continue to soar higher in the months ahead as the video game industry continues to heat up.
For those of you who aren’t familiar with GAMR, let me give you a quick rundown of what it — and the video game space as a whole — has to offer.
Although a video game ETF might seem like something reserved for young, millennial investors, a glimpse at GAMR’s holdings will show you why this isn’t the case. When you break it down, this fund has something to offer any growth- or tech-minded investor.
The GAMR ETF gives investors exposure to numerous well-known and niche video game companies like Capcom CO LTD (OTCMKTS:CCOEF) and Webzen Inc (ADR) (OTCMKTS:WZENY) as well as hardware companies like Advanced Micro Devices, Inc. (NASDAQ:AMD), Intel Corporation (NASDAQ:INTC) and Nvidia Corporation (NASDAQ:NVDA) that produce the components necessary for high-end gaming.
The bulk of the ETF’s holdings focus on home entertainment software (62%), with application software (8%), internet software and services (7.5%), tech hardware, storage and peripherals (6%) and semiconductors (5.6%) finishing out most of the remaining sub-industry allocation.
The heavy-handed emphasis of software and hardware leads to significant international exposure in countries like Japan (31%), South Korea (10%) and China (6.5%), alongside a strong base of U.S-based companies (36%). Keep in mind that the audience for games is also on a massive, global scale, and not just limited to the U.S.
The Future Prospects of the GAMR ETF
It’s not just the big/small-name exposure that sets GAMR apart from the pack, nor is it the international exposure; it’s the potential of the gaming industry itself that makes this combination of stocks standout from the picks in other tech ETFs.
Video games are constantly gaining more visual complexity, and the processing and graphic power needed to run them will continue to increase. Combine constant demand for growing power with other power-hungry developments in gaming like Virtual Reality (VR), which is expected to produce $45 billion in revenue in the next seven years and you have a taste of the compounding potential in the video game industry.
But it’s not just the continual demand for more powerful hardware that drives the industry; the software, which GAMR emphasizes more than anything, is the most important part.
There are currently more than 2 billion active gamers out there and they use several different platforms — mobile, PC’s and consoles, among others — to indulge in a medium that provides a seemingly limitless variety of long-lasting entertainment. Notably, among these 2 billion gamers, 1 billion of them are willing to “spend money while playing.” And we can expect that number to rise as the number of gamers continues to increase in the years ahead.
Clearly, with a massive amount of gamers already in the mix, the industry has “matured” over the past “40-plus years,” and it might be unrealistic to expect astronomical growth, but investors should still expect reliable and significant growth potential from the already massive industry. In fact, revenue growth in 2017 beat expectations, rising 10.7% on $116 billion from 2016.
Bottom Line on GAMR
This doesn’t even consider the fact that the appeal of gaming is even more multifaceted and complex than you might expect.
People also enjoy watching video games be played by others. In fact, “eSports” — video games played as official sports by professional players with large audiences — are gaining strength and they are expected to help the gaming industry as a whole surpass the $150 billion sports industry “within three or four years.” The popularity of eSports should gain momentum as more games are designed specifically for that purpose and the idea of watching others play video games as entertainment becomes more mainstream through video streaming services like Amazon.com, Inc.’s (NASDAQ:AMZN) Twitch.
Overall, I like my chances with GAMR as the best ETF of 2018. And regardless of whether it wins the competition, it should be a reliable growth ETF as gaming continues to steamroll other popular forms of entertainment worldwide in the years ahead.
I think it’s “Game Over” for the other so-called “best ETFs for 2018.”
Robert Waldo is an Assistant Editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.