Exchange traded funds dedicated to video games and e-sports are having a moment. Well, a moment in terms of population growth. With Tuesday's debut of the Global X Video Games & Esports ETF (HERO), there are now five video game ETFs for investors to choose from, three of which have come to market this year.
The growth of the video game ETF space cements the notion that issuers are willing to test the waters with thematic funds and recent data confirm as much.
“At the end of third quarter, there were 119 thematic ETFs with a combined $25 billion in assets under management,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a recent note. “While the base remains relatively small, the assets in thematic ETFs increased fourfold since 2015 as investors increasingly look for long-term growth ideas and seek the diversification and tax efficiency benefits of the ETF wrapper.”
Indeed, the current asset base for video game ETFs is small. Prior to HERO's launch earlier this week, the four existing funds in this segment combined for about $135 million in assets under management and none of those four had $100 million in assets.
That does not mean HERO and its rivals will remain small. The history of thematic ETFs shows that sometimes it takes awhile for investors to warm to the concept, but if the investment objective is credible and backed by compelling, some of these funds can and do pack on assets.
HERO's Got The Goods
Driven by e-sports' growth spurt, increases in communal gaming and updates to popular franchises, the video game industry was a $140 billion business last year and that figure is likely to easily tack on another $10 billion or more this year, confirming the point that gaming is the fastest growing form of entertainment in the world.
Another arrow HERO and its rivals have in their respective quivers is user devotion, an element that has permeated other disruptive themes. Think about the intersection of devotion and disruption this way: just to name a few, Apple (AAPL), Amazon.com (AMZN) and Facebook (FB) are each disrupters due in large part to creating products or services users feel as though they can't live without.
Data suggest gamers are devoted, too, and those points are more compelling among coveted younger demographics.
“The average gamer spends seven hours and seven minutes per week gaming,” according to Global X research. “Millennials aged 26 to 35, spend even more gaming, at eight hours and 12 minutes each week. More than 79% of gamers between the age of 18-25 watch other players stream games online every week. 26 to 35 year olds spend roughly the same time watching others play video games as they do watching traditional sports on TV.”
Growth Drivers
Even if an investors wants to gloss over the e-sports boom, one HERO is levered to, which is driving a surge in advertising dollars and television that is poised to exceed that of all the major traditional sports leagues in the U.S. besides the NFL, one cannot get around some of the other mega-growth trends in the video game space.
Those include mobile and cloud gaming, avenues that touch other disruptive themes such as cloud computing (obviously) and 5G mobile technology. Mobile gaming, in particular, has “mega trend” potential for the simple reason that many gamers are still playing on consoles or PCs.
“Mobile gaming, on tablet and handheld devices, accounts for 9%, and smartphones 36% of total revenues,” according to Global X. “This dynamic could change in the near future as the mobile segment continues to grow through greater smartphone penetration and monetization efforts. What’s more, advancements in cloud computing and 5G technologies could further accelerate mobile gaming as they allow for more sophisticated titles to be played on handheld devices.”
Bottom line: investors may not flock to HERO right off the bat, but as the gaming industry's growth trends become more apparent, this rookie fund has the potential to lure a broad audience and deliver capital appreciation.
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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Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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