The Top 3 Video Gaming ETFs

A lot of things are negatively stereotyped and associated with young people, video games being one of them. However, to think of video gaming as "just a thing that kids do" is to overlook a vast and robust industry, ripe with opportunities for investors. Video gaming is a multibillion-dollar industry; interactive games and eSports have emerged as a powerhouse of entertainment worldwide. The sales of digital games are continuously breaking records, and industry revenues have continued to trend higher. This represents a booming market segment, making it a space that investors should take note of.

Here’s an overview of the global video game ecosystem and the best ways to invest in it.

One of the first video games, Tennis for Two (a precursor to Pong), created by William Higinbotham, a nuclear physicist, was introduced in October 1958 at one of the Brookhaven National Laboratory’s annual visitors’ day. Today, video gaming engages around 2.7 billion people globally, and this number is expected to exceed 3 billion by 2023. Over time, the number of gamers and the amount of time spent playing and watching video games has increased. According to an Entertainment Software Association (ESA) report, 64% of U.S. adults regularly play video games. The average age range of a video game player is 35-44 years. In terms of the hours spent on gaming, the average gamer spends seven hours and seven minutes per week gaming.

In 2020, the total video game industry is projected to reach $159.3 billion in revenues at a healthy year-on-year growth of 9.3%. The market will continue to grow and is projected to exceed $200 billion at the end of 2023. According to an estimate, the global gaming market is expected to reach a value of $256.97 billion by 2025.

The adoption of smartphones has only accelerated the spread of gaming. Mobile gaming now represents the largest and fastest-growing platform by revenues, and is projected to account for 48% of the global market revenue in 2020. The advancements in cloud computing and the availability of 5G technologies could further accelerate mobile gaming.

Although video gaming has been associated with many negative health consequences, it may also be useful for therapeutic purposes, according to a study. According to an ESA survey, 80% of players say video games provide mental stimulation while 79% say that it provides relaxation.

Here’s an overview of the top three exchange-traded funds that offer a convenient way to participate in the growth trajectory of this segment.

Global X Video Games & Esports ETF (HERO)

Launched in October 2019, the Global X Video Games & Esports ETF enables investors to invest in companies that are positioned to benefit from the increasing popularity of video games and esports. It’s portfolio constitutes 40 companies that develop or publish video games, facilitate the streaming and distribution of video gaming or esports content, own and operate within competitive esports leagues, or produce hardware used in video games and esports, including augmented and virtual reality. The ETF tracks the Solactive Video Games & Esports Index, and takes exposure to countries such as Japan (26%), U.S. (26%), China (16%), South Korea (9%), Singapore (7%), Sweden (7%), and France (4%). The ETF has $378.6 million as assets under management and an expense ratio of 0.50%. The top ten stocks holdings of the fund are:

• Sea Ltd. (SE)
• Nintendo Co. Ltd. (NTDOY)
• NVIDIA Corporation (NVDA)
• Activision Blizzard, Inc. (ATVI)
• Capcom Co. Ltd.
• Nexon Co. Ltd. (NEXOY)
• NetEase, Inc. (NTES)
• UBISoft Entertainment (UBSFY)
• Electronic Arts, Inc. (EA)
• Take-Two Interactive Software, Inc. (TTWO)

VanEck Vectors Video Gaming and eSports (ESPO)

The VanEck Vectors Video Gaming and eSports ETF tracks the MVIS Global Video Gaming and eSports Index which constitutes companies involved in video game development, esports, and related hardware and software. The fund was launched in October 2018 and provides exposure to companies in the gaming and esports space, across countries such as U.S. (33%), Japan (23%), China (18%), Taiwan (8%) and South Korea (6%), Poland (4%), Sweden (3%), and France (3%). The fund has $577.44 million as assets under management and an expense ratio of 0.55%. The fund has a portfolio of 25 large cap stocks with top holdings adding up to 61% of the assets.

• Tencent Holdings Ltd. (TCEHY)
• NVIDIA Corporation (NVDA)
• Sea (SE)
• Nintendo Co. Ltd. (NTDOY)
• Advanced Micro Devices, Inc. (AMD)
• Bandai Namco Holdings, Inc. (NCBDY)
• Activision Blizzard, Inc. (ATVI)
• Nexon Co. Ltd. (NEXOY)
• NetEase, Inc. (NTES)
• Zynga, Inc. (ZNGA)

Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD)

Launched in June 2019, the Roundhill BITKRAFT Esports & Digital Entertainment ETF tracks the Roundhill BITKRAFT Esports Index and constitutes a modified equal-weighted portfolio of globally listed companies in the video gaming industry. The fund has a multi-cap portfolio of 32 companies with approximately $46 million as assets under management and an expense ratio of 0.50%. It provides exposure to 12 countries with the U.S. and China adding up to 50% of the total allocation, while Taiwan, Singapore, Sweden, Japan, Switzerland, Ireland, Canada, Germany, France, and South Korea make the other half. The top holdings of the fund are:

• Corsair Gaming, Inc. (CRSR)
• Tencent Holdings Ltd. (TCEHY)
• DouYu International Holdings Ltd. (DOYU)
• Activision Blizzard, Inc. (ATVI)
• Modern Times Group
• Razer, Inc. (RZZRY)
• Huya, Inc. (HUYA)
• Sea (SE)
• UBISoft Entertainment (UBSFY)
• Bilibili, Inc. (BILI)

Going forward, broader trends including demographic shifts, changing consumer demands, cord-cutting, Internet penetration and developing technologies such as 5G will continue to fuel the growth of the video game ecosystem.

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional. The fast growing ‘esports’ is a part of video game ecosystem.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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