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Augmented reality (AR) and virtual reality (VR) are usually viewed through the lens of those headsets gamers use, but there’s much more these segments, including some exponential growth that’s accessible via VR stocks and funds.
VR investments become more alluring as investors discover the wide array of uses for AR and VR technologies. These range from surgery simulation, military training, heads-up displays for pilots, as well as some educational and psychological pursuits.
Although supply chains were thrown for a loop in the first half of this year, global shipments of AR/VR headsets are expected to bounce back in the second half, topping last year’s blistering pace.
“However, assuming production ramps back up by midyear, IDC believes a rebound in the second half of 2020 will result in total shipments of nearly 7.1 million units for the year, up 23.6% from 2019,” according to IDC. “Long-term growth will be strong throughout the forecast period with shipments growing to 76.7 million units in 2024, resulting in a compound annual growth rate (CAGR) of 81.5%.”
For investors that want in on that growth, consider some of the following funds.
- Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ)
- Communication Services SPDR Fund (NYSEARCA:XLC)
- VanEck Vectors Semiconductor ETF (NASDAQ:SMH)
- SPDR S&P Kensho New Economies Composite ETF (NYSEARCA:KOMP)
- Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSEARCA:NERD)
- Invesco QQQ (NASDAQ:QQQ)
Global X Robotics & Artificial Intelligence ETF (BOTZ)
Expense ratio: 0.68% per year, or $68 on a $10,000 investment
Obviously, the Global X Robotics & Artificial Intelligence ETF is a fund that focuses on the segments mentioned in its name, but artificial intelligence (AI) and robotics are viable avenues for accessing virtual reality.
Neither AI nor VR are particularly new technologies, but the idea of marrying them is gaining momentum. BOTZ is one of the funds that’s at the epicenter of what could be a long, profitable marriage for investors.
“VR use technology to create simulated environments that we can submerse ourselves into, while AI aims to outfit technological devices with the keen insight and perception of a responsive being,” according to VR Vision. “Recently, major advances have been made to enhance VR and AI and bring them together to create a single form of technology that offers possibilities that are seemingly endless.”
The combination of AI and VR can span myriad industries, including healthcare, retail, and streaming entertainment, just to name a few.
Communication Services SPDR Fund (XLC)
Expense ratio: 0.13% per year
The Communication Services SPDR Fund is another ETF that has more VR credentials than meet the eye. That’s a benefit accrued when an ETF allocates more than 43% of its combined weight to Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Those are viable VR stocks, as Facebook owns the VR headset maker Oculus. Google is a player in this market, too.
“Facebook CEO Mark Zuckerberg is a true believer in the technology and still believes that VR technology will ultimately play a much bigger role in people’s lives, including how they engage in other computing activities,” reports CNBC.
One issue confounding Facebook and Google is the ability to deliver VR headsets at attractive price points. Another is producing lower-end models that aren’t clunky and unappealing. When that happens, VR could really take off and XLC could deliver for investors looking for VR exposure.
VanEck Vectors Semiconductor ETF (SMH)
Expense ratio: 0.35% per year
Like so many disruptive technologies, VR is powered by semiconductors, making the VanEck Vectors Semiconductor ETF a sensible addition to this list. Some of the largest chip makers, including several SMH holdings, have VR exposure.
Qualcomm (NASDAQ:QCOM) powers a camera-based depth-sensing module, while the heavy AI footprint offered by high-flying Nvidia (NASDAQ:NVDA) makes that stock a logical VR play as well. Those are just two examples, but there’s another relationship between semiconductor makers and AR/VR. Many chip producers employ AR as part of their factory maintenance regiments.
“The chip industry, with its ultra-specialized machines and highly automated factories, called fabs, is well-suited for using augmented reality,” reports the Wall Street Journal.
SPDR S&P Kensho New Economies Composite ETF (KOMP)
Expense ratio: 0.20% per year
The SPDR S&P Kensho New Economies Composite ETF follows the S&P Kensho New Economies Composite Index. This index presents investors with a dual play on AI because that benchmark uses that technology in its security selection process. The index is also chock full of companies that are engaged in the AI, automation, and robotics fields.
KOMP isn’t a dedicated VR fund, but it offers ample exposure to the theme via positions in Tesla (NASDAQ:TSLA), Nvidia and Apple (NASDAQ:AAPL), just to name a few. Plus, KOMP’s VR credentials are enhanced by a nearly 10% allocation to chip stocks.
Another reason to consider KOMP: the novel coronavirus pandemic is highlighting the necessity of many of the technological advances companies in this fund are pushing.
“Home networks, improved power grids, robotics/automation to replace physical labor, safety equipment for nonremote jobs, as well as automated transport systems are all likely innovations to support the systematic change in how we will work, live and travel,” according to State Street research. “These trends will compound the growth already expected for “smart cities,” where global spending was already estimated at $124 billion in 2020 ─ a 19% increase over 2019’s figure.”
Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD)
Expense ratio: 0.25% per year
Gaming is the epicenter of the consumer side of the VR universe, making the Roundhill BITKRAFT Esports & Digital Entertainment ETF a fine idea for that part of the VR equation. Facebook’s Oculus Rift and the Reverb headset made by HP (NYSE:HPE)and Microsoft (NASDAQ:MSFT) are among the competitors in this arena.
As noted above, the issue facing makers of VR headsets used by gamers is cost. Some of the premier products in this space cost upwards of $500 or more. Others that are considered solid products don’t come with all the necessary accessories, meaning buyers need to have some deep pockets to get into the game (pun intended).
Fortunately, that’s not a threat to the NERD thesis because the ETF’s VR exposure is modest. Investors aren’t going to quibble with a year-to-date return of 17.55%.
The long-term thesis for NERD revolves around the growth of esports, the ability of software makers to continue luring gamers to famed franchises, and hardware upgrades, a cycle for which is coming later this year. Think of VR’s impact on NERD as more icing on the cake.
Invesco QQQ (QQQ)
Expense ratio: 0.20% per year
Consider the Invesco QQQ as a safe idea for VR exposure. QQQ is famed for its large weights to Microsoft, Apple, Alphabet and Facebook, among others, so it’s in the VR game to be sure. With its 47.50% weight to the technology sector, QQQ also features some of the largest exposure to semiconductor stocks among ETFs that are not dedicated chip funds.
The bottom line with QQQ is that investors get a broad, liquid, cost-effective avenue to a slew of sturdy growth companies that have VR exposure, but aren’t dependent on that theme to drive that growth.
The bet made with QQQ is a broader wage on the expansion of disruptive technologies, e-commerce, and cash flow generating capabilities of the fund’s top tier components. Growth in the VR industry is simply an added bonus here.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.