Video game exchange traded funds (ETFs) reside squarely in the thematic fund arena and that’s alright because this is a credible theme. Last year, video game revenue topped $134 billion, a figure that is poised to grow in the years ahead as e-sports grabs a larger slice of the pie.
That’s pivotal information for investors considering video game ETFs because some other thematic ETFs look good on the outside, captivating with compelling notions of grandeur, but on the inside, trouble awaits. The opposite is true of video game ETFs, particularly when accounting for the fact that gaming is the world’s fastest-growing form of entertainment.
For the uninitiated, one way to look at video game investing is like this: Microsoft (NASDAQ:MSFT) has long been a player in this space on the hardware side, and Apple (NASDAQ:AAPL), via Apple Arcade. and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), via its Stadia offering, are getting into the game (pun intended).
While you won’t find those stocks in video game ETFs, some of the following funds are still worth considering.
Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD)
Expense ratio: 0.25% per year, or $25 on a $10,000 investment.
The Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSEARCA:NERD) is one of the newer players in the video game ETF arena, having debuted in June. NERD tracks the Roundhill BITKRAFT Esports Index, the first rules-based benchmark dedicated to this investment niche. NERD holds 25 stocks with an average market value of $4.8 billion, making this video game ETF a mid-cap fund.
NERD’s index “consists of a modified equal-weighted portfolio of globally-listed companies who are actively involved in the competitive video gaming industry,” according to Roundhill. “This classification includes, but is not limited to: video game publishers, streaming network operators, video game tournament and league operators/owners, competitive team owners, and hardware companies.”
Of course, NERD has ample exposure to traditional video gaming and that’s a good thing when two of every three Americans are gamers, but the real growth story here is e-sports.
“There are 454 million esports viewers worldwide, growing to an estimated 645 million by 2022,” according to Roundhill. “More people watch video games than Netflix, HBO, ESPN, and Hulu – combined.”
VanEck Vectors Video Gaming and eSports ETF (ESPO)
Expense ratio: 0.55%
The VanEck Vectors Video Gaming and eSports ETF (NYSEARCA:ESPO) was the first ETF with “e-sports” in its name, but the fund is still a couple of weeks shy of its first anniversary. Home to nearly $38 million in assets under management and 25 stocks, this video game ETF tracks the MVIS Global Video Gaming and eSports Index.
Like so many other fast-growing segments, it’s difficult picking individual stocks in the e-sports space because many companies here are not yet public, are very small, or aren’t listed in the U.S. Those scenarios underscore the utility of a fund like ESPO.
“Determining which game companies will produce the next big hit is difficult, and investors may wish to invest in a diversified basket of stocks,” according to VanEck. “Such an approach may allow investors to express a view on the sector without having to analyze each specific stock.”
Among thematic funds, ESPO is somewhat conservatively positioned with large allocations to familiar names, such as Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD), a trait that should appeal to a broader swath of investors.
Defiance Next Gen Video Gaming ETF (VIDG)
Expense ratio: 0.30%
The Defiance Next Gen Video Gaming ETF (NYSEARCA:VIDG) is another newcomer to the video game ETF, having also debuted in June. Issuer Defiance converted an old fund into this product. VIDG follows the BlueStar Next Gen Video Gaming Index.
That index “is a rules-based index that tracks the performance of a group of stocks of global companies involved in a range of industries, collectively defined by BlueStar Indexes as Interactive Entertainment Index components are reviewed semi-annually for eligibility, and weights are re-set according to a tiered market capitalization weighting strategy,” according to Defiance.
In terms of video game ETF purity, VIDG has that as over 76% are video game publishers. Console makers and e-sports names combine for over 11% of the fund’s weight.
With the holiday shopping season almost here, VIDG’s purity could be useful for investors with the expected debut of marquee titles such as another “Call of Duty: Modern Warfare,” Luigi’s Mansion,” “Death Stranding” and “Star Wars Jedi: Fallen Order.”
ETFMG Video Game Tech ETF (GAMR)
Expense ratio: 0.75%
The ETFMG Video Game Tech ETF (NYSEARCA:GAMR) is the oldest of the video game ETFs, having debuted in March 2016. Compared to the other video game ETFs mentioned here, GAMR is the largest by roster size with 85 components, none of which exceed weights of 3.40%. Though its weight to the stocks aren’t large, GAMR does feature exposure to Alphabet, Apple and Microsoft, which is a rarity among video game ETFs.
By virtue of what is the deepest bench in its respective investment niche, GAMR also credible e-sports exposure.
“In 2017, Americans spent 355 billion minutes watching Esports on Twitch and YouTube, which grew at a rate of 22% from the prior year,” according to ETFMG.
iShares Evolved U.S. Media and Entertainment ETF (IEME)
Expense ratio: 0.18%
The iShares Evolved U.S. Media and Entertainment ETF (CBOE:IEME) isn’t a dedicated video game ETF, but it is an actively managed fund, meaning it can increase video game exposure beyond its combined weight of nearly 8% to Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA).
Take Two Interactive Software (NASDAQ:TTWO) is the other proper video game name in IEME and the fund features exposure to some looser industry players,
IEME also has some exposure to several casino operators, which not only levers the fund to land-based casinos, but the booming worlds of online casinos and mobile sports wagering, two industries that, right or wrong, are often lumped in with video games.
Todd Shriber does not own any of the aforementioned securities.