The InvestorPlace Q&A: Profit from the Digital Consumer With the ProShares MSCI Transformational Changes ETF

ANEW - The InvestorPlace Q&A: Profit from the Digital Consumer With the ProShares MSCI Transformational Changes ETF

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This is part of a four-part series exploring the four facets of the ProShares MSCI Transformational Changes ETF (NYSEARCA:ANEW) ETF: The Future of Work, Genomics and Telehealth, the Digital Consumer and the Food Revolution. Click on other themes where linked to read other installments.

The internet has disrupted huge swaths of our daily life. Need to buy a book? Order it online. Want to book a plumber for that frozen pipe? There’s probably an app for that. Booking vacations, buying cars, getting food from restaurants, even doctor’s appointments and hanging out with friends have all moved online.

And it’s that mega-trend that informs the third of the ProShares MSCI Transformational Changes ETF’s (NYSEARCA:ANEW) four areas of dynamic change.

As Proshares’s information on the fund explained, “In the U.S., e-commerce accounted for approximately 4% of total retail sales in 2009, steadily growing to 11% in 2019. By July 2020, e-commerce represented 16% of retail sales with COVID-19 driving a further 5% penetration in mere months.”

That’s a huge market with a lot of strong players in it, but it’s not the only area of interest to this fund. It’s not just shopping but also the art of experiences that the internet transformed. Social media is increasingly a core way for people not only to chat but also to get their news. And that makes it an extremely important avenue for advertising dollars as well.

And then there’s gaming. Whatever preconceived notions you may have about that pastime, there’s a lot of money in video games and e-sports. Again, as pointed out by ProShares, “McKinsey & Company reports that downloads of gaming apps in 2020 are up more than 30% year-over-year in the U.S., and global e-sports revenue has grown by 28% annually since 2015.” That sort of growth offers big opportunities to investors.

The fund charges an 0.45% expense ratio, or $45 per $10,000 invested annually.

I had a chance to discuss the ANEW ETF with Scott Helfstein, executive director of Thematic Investing for ProShares, and talk about how ANEW is letting investors get in on the increasing numbers of digital consumers.

InvestorPlace: The rise of the internet has changed everything from banking to car sales. What areas look ripe for further disruption as the internet’s speed and reach extends further? 

Scott Helfstein, executive director of Thematic Investing for ProShares: So much of our lives are spent online. From our wrist we can trade stocks, order groceries, pay for coffee, and track our health. Companies like Apple (NASDAQ:AAPL) and Samsung, both in ANEW, are at the forefront of wiring our lives with user-friendly platforms. The pandemic has underscored the idea that nothing is immune from digital disruption.  For example, connected fitness has entered the mainstream at the expense of public gyms, and the people you saw previously squeezing tomatoes and checking for ripeness are now using online grocery delivery. COVID-19 accelerated this transformation. The biggest question is how we do all these activities smarter and more efficiently. Algorithms that help to bring order to our lives will drive the next set of disruptions.

InvestorPlace: We talked in an earlier article about digital payments and cybersecurity – both vital components as consumers buy more and more stuff online. Can you talk about some of the heavyweights in ANEW that are making e-commerce as user friendly as possible? 

ProShares: The company that first comes to mind is Amazon (NASDAQ:AMZN). Amazon is a true logistic juggernaut, but they make the user experience so easy. There is still a significant runway for further growth when you consider that ecommerce represents just 14% of total retail. That number may be more than double a decade from now. Sitting underneath that infrastructure is a complex payments network that includes firms like PayPal (NASDAQ:PYPL), Square (NYSE:SQ), and Alibaba’s (NYSE:BABA) Ant Group.

PayPal was started in 1998 and initially part of eBay (NASDAQ:EBAY). Today, the company has more than 300 million users and more than 80% of online shoppers use the service. They are also on the forefront of peer-to-peer with services like Venmo and Braintree. Square’s Cash app also took off during the pandemic as people went “cashless” to avoid contact. They reported cashless transactions increased from 8% to 31% by April of 2020. There is more innovation and disruption to come in this area.

InvestorPlace: Video games used to be seen as a juvenile pastime, but the perception has changed in recent years, with only 21% of gamers under the age of 18. With all this buying power, what do the next few years look like for this space? How is the landscape changing as more traditional marketers enter the genre and it becomes more “mainstream”? 

ProShares: The growth of the gaming industry has been remarkable. The 2020 Game Awards drew 83 million viewers, an 84% increase over 2019’s 45 million. For context, the Academy Awards only drew 23 million viewers and declined from 29 million a year earlier. When the Game Awards draw almost 4 times as many sets of eyeballs, this is no longer child’s play. Gaming revenue per share for leaders like Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA) has grown by about 8% annually over the past decade compared to the S&P 500 at 3.7%.

One big question is how gaming companies handle the move to the cloud and the relationship to the console. The console companies, like Microsoft’s (NASDAQ:MSFT) Xbox, delayed the upgrade cycle and are just rolling out the new systems, but gamers are increasingly reliant on the cloud. Nintendo (OTCMKTS:NTDOY) has tried to avoid this strategy by keeping exclusive content in a closed ecosystem. Also, keep an eye on Facebook (NASDAQ:FB) with rollout of Quest 2 VR system. I used it last month and was very impressed. VR is still a small part of the gaming landscape, but it is increasingly accessible and functional.

InvestorPlace: E-sports viewership has been rising by double digits each year, and is expected to continue its impressive growth. What are some of the biggest names in ANEW set to benefit from this surge? Is increased e-sports participation poised to maintain/accelerate growth in the post-Covid world? 

ProShares: In the second quarter of 2020, people watched over 3 billion hours of gaming content. To put that in perspective, if you watched video game content for 12 hours a day for 75 years, you would need to live more than 9,000 lifetimes to reach that total number of hours watched. This is big business and a lot of people miss this aspect of the video game industry. More than 200,000 participated in the Electronic Arts FIFA world championship last year. F1 racing had drivers compete in simulators in the early months of the pandemic.

Investors should probably expect interest to soften as the economy reopens and people can go back to traditional sports venues and amusement parks, but there will be permanent converts who remain loyal to esports. The big gaming companies like Activision Blizzard, Electronic Arts, and Tencent (OTCMKTS:TCEHY) will do well as esports catch on, but newer entrants like Kingsoft are well positioned to ride the tailwind of esports growth.

InvestorPlace: Social media companies have come under fire recently for moderating their users’ posts both too much and too little. Which social media companies will push past this and continue their growth into the next decade? How has the need for accurate information during the pandemic impacted the prospects for future social media censorship? 

ProShares: People will continue to create content and that is the lifeblood of social media. So, the companies may face scrutiny and some additional regulation, but information is increasingly decentralized and there seems little chance of turning back the clock. Historically, government efforts to regulate companies have typically driven operating costs up in the short run, but that also inadvertently creates barriers to entry for new firms, and that competitive moat allows firms to increase margins over time. Social media may fall into that category.

During the pandemic, people relied heavily on platforms like Pinterest (NYSE:PINS), which is held in ANEW, and has not received the negative attention that others like Twitter (NYSE:TWTR) garnered. Pinterest is an example of how people are organizing their digital lives and sharing interests. The reopening or return to normal after the pandemic means that people will likely be supplying fresh content, and competing for customers in areas like experience and travel should drive advertising budgets that were tremendously tight in 2020.

InvestorPlace: As our world becomes increasingly digitized, what are some of the other interesting disrupters in the consumer space for investors to follow?

ProShares: Every company is now a technology company even if that is not their primary revenue source. Disruption will occur in industries in need of increased competition, transparency, decentralization, and customization. Think back to the Ford (NYSE:F) Model T, which you could have in any color you wanted provided it was black. I believe there are more than 100 different wristbands for the new Apple watch. Digital customers want an increasingly personalized experience, so there is more to come on that front.

On the date of publication, Jessica Loder did not have (either directly or indirectly) any positions in the securities mentioned in this article.

In The InvestorPlace Q&A, we invite a manager to speak directly to Main Street investors, whether discussing their firm’s technologies, strategies or investments for the year ahead. Our goal is to put the spotlight on fund managers and other institutional investors of note, providing a detailed look into their management styles, world views and investing strategies. Read past interviews here.

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