With coronavirus case counts surging again, particularly in highly populated states such as California, Texas and Florida, it's not surprising that some investors are revisiting assets that benefited from pandemic pushes earlier this year.
Prime beneficiaries of the demand for assets with positive leverage to the pandemic include biotechnology and technology stocks and exchange traded funds. That's certainly sensible. After all, the race for a COVID-19 vaccine involves more than a 100 companies, including a slew of familiar names. Likewise, the massive work-from-home shift is driving an array of communication services and technology stocks higher in 2020.
Of course, folks still need to be entertained during a pandemic. With travel options still sparse, bars and restaurants limited or reclosing in some states and other traditional out-of-the-home entertainment options still off limits, shelter-in-place entertainment isn't just a necessity. It's an investable idea and one that spans well beyond Netflix (NFLX), though that stock deserves plenty of credit as it's up a jaw-dropping 62.22 percent this year.
Another way to play the pandemic home entertainment theme is with video game equities and ETFs. Just look at the VanEck Vectors Video Gaming and eSports ETF (ESPO), which is higher by 42.39 percent year-to-date.
Putting ESPO's stellar 2020 showing into context, there are nearly 2,300 exchange traded products (ETPs) listed in the U.S. Fewer than 80 are up 30 percent or more this year.
Looking Beyond Coronavirus
There's no debating ESPO and rival ETFs are getting a lift from COVID-19's effects on everyday life in the U.S.
“Esports viewership continues to grow and set new records, driven in part by the rising population of digital natives,” said VanEck in a recent research note. “An eNASCAR race broadcast on Fox and Fox Sports 1 on March 29, 2020 drew over 1.3 million viewers, making it the most watched broadcast TV esports event in history.”
Look at that date. March 29 was smack dab in the middle of the coronavirus shutdown when traditional sports leagues, including NASCAR, were on the sidelines.
However, what's essential when assessing investments that are getting a coronavirus lift is how useful these strategies will be when the virus is vanquished. That's not a concern with, say, biotech and tech ETFs, but investors new to the esports and video game themes may ponder the fate of these segments when COVID-19 is a thing of the past. Good news: these markets are robust and growing.
“Video game revenues have been growing consistently in recent years, and with the help of technological innovation, video game publishers have diversified their revenue streams,” according to VanEck. “Notably, the rise of the 'game as a service' model has helped extend the revenue lifecycle of games.”
Source: Newzoo. Projected revenues for 2019-2022. Courtesy: VanEck
What's encouraging about that chart is that shows video game industry revenue was rising prior to the onset of COVID-19. That speaks to the long-term potential of strategies such as ESPO.
Shifting Tastes, Demographics Matter
The long-term thesis for ESPO is bolstered by catalysts that frequently pop up when discussing disruptive, thematic investments: demographics and shifting consumer tastes.
“Esports reflect the convergence of entertainment, video gaming, sports, and media businesses. With an active, engaged and relatively young demographic, the stage is set for sustainable long-term growth,” according to VanEck.
Consider the following about esports viewership: most of the fans of these competitions are under 30 years old. Second, over the next several years, esports is expected to surpass all traditional sports except the NFL in terms of domestic TV viewership, explaining why advertisers and sponsors are scrambling to get in on esports action.