In the world of exchange traded funds (ETFs), there are not many gaming ETFs. In fact, the only one that is direct play on casino and gambling stocks is the VanEck Vectors Gaming ETF (NYSEARCA:BJK).
For investors looking for exposure to well-known domestic gaming stocks, such as Las Vegas Sands Inc. (NYSE: LVS) and Wynn Resorts Ltd. (NASDAQ:WYNN), BJK is the gaming ETF to turn to. Plus, there are some other benefits with this gaming ETF as well. However, there are some drawbacks, too.
Let’s look at some pros and cons of BJK, the big kahuna of gaming ETFs.
Pro #1: The Best Bet
BJK, which is over a decade old, tracks the Global Gaming Index (MVBJKTR). That index “is intended to track the overall performance of companies involved in casinos and casino hotels, sports betting, lottery services, gaming services, gaming technology and gaming equipment,” according to VanEck.
This ETF holds 45 stocks and while some other funds have exposure to a handful of gambling-related equities, BJK really is in the only game in town when it comes to gaming ETFs.
Pro #2: Tops For Macau Exposure
In the U.S., gamblers and tourists looking for gaming destinations primarily focus on Las Vegas and, to a lesser extent, places like Atlantic City and Reno. But the world’s largest gambling destination is Macau, a Chinese territory and the only part of China where gambling is legal.
Not only is BJK the only dedicated gaming ETF in the U.S., it is one of a few ETFs with anything resembling decent Macau exposure. The U.S. is BJK’s largest geographic exposure at almost 40%, but China chimes in at about 15.3%. Overall, 16 countries are represented in BJK, meaning this gaming ETF is also a global fund.
In the first half of this year, 16.8 million travelers visited Macua, a year-over-year increase of 8%.
Pro #3: Growth Potential
Typically, when investors think about gambling stocks and ETFs, they think about casino operators and actually being inside of a casino. However, there is more to the gaming investing ecosystem than just physical casinos.
“The global online gambling & betting market is expected to reach a value of US$ 128.2 Bn by 2026, expanding at a CAGR of 11.8% from 2018 to 2026,” according to Transparency Market Research.
Increases in “disposable income of consumers, trust in a wagering through electronic payment mode of online gambling & betting, and growth in penetration of the Internet, along with adoption of Internet-based devices, are driving the growth of the online gambling & betting market,” said the research firm.
Some BJK components are directly participating in the online and sports gambling booms.
Con #1: A High Fee
One of the most obvious drawbacks pertaining to this ETF is its high fee. BJK’s annual expense ratio is 0.65% per year, or $65 on a $10,000 investment. That is well above the fees found on domestic index funds and ETFs dedicated to the consumer discretionary sector and much more expensive than basic global and all-country ETFs.
Without a credible competitor among gaming ETFs, there probably is not much of a need for BJK to see a lower fee.
Con #2: A Little More Volatility
This is not much of a mark against BJK. With this ETF being a global fund, some extra volatility relative to a domestic equity index is to be expected. Plus, over 23% of BJK’s holdings are mid- and small-cap stocks, so there is bound to be a little more volatility than in a basket of just large-cap stocks.
BJK’s three-year standard deviation of 18.70 is not alarmingly high, but it probably is not suitable for skittish investors. Plus, this gaming ETF is noticeably more volatile than the Dow Jones U.S. Consumer Services Index.
Con #3: China
When things are going well for the gaming ETF, China is often a contributor to that upside, but that is a double-edged sword. Disappointments on Macau gaming revenue figures, which are reported monthly, can weigh on BJK.
And sometimes it takes a lot for investors to be impressed by Macau. Gross gaming revenue there is expected to increase by low teens percentages for much of 2018, but even with that, BJK has traded modestly lower on a year-to-date basis.
BJK needs to rise more than 8% to reclaim its previous 52-week high and almost 3% to get back above its 50-day moving average.
Todd Shriber does not own any of the aforementioned securities.