BlackRock launches metaverse thematic ETF

Feb 21st, 2023 | By | Category: Equities

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BlackRock has become the latest ETF issuer in the US to introduce a thematic equity fund targeting companies worldwide that are shaping the development of the metaverse.

Metaverse thematic ETFs

The metaverse describes a future iteration of the internet, supporting persistent online 3-D virtual environments.

The iShares Future Metaverse Tech and Communications ETF (IVRS US) has been listed on NYSE Arca with an expense ratio of 0.47%.

The metaverse is a term used to describe the concept of a future iteration of the internet, made up of persistent, shared, 3D virtual spaces linked into a perceived virtual universe.

The metaverse is expected to be richly integrated into the physical world, thereby creating a new medium and economy for work, leisure, and innovation, while transforming long-standing industries and markets such as finance, banking, retail, education, health, and fitness, among many others.

While still in its infancy, the metaverse has already attracted billions of dollars of investment. Morgan Stanley analysts predict the metaverse has the potential to generate $8.3 trillion in total consumer expenditure in the US alone, depending on the level of disruption.

Methodology

The fund is linked to the Morningstar Global Metaverse & Virtual Interaction Select Index which selects its constituents from a universe of stocks from developed and emerging markets, excluding India. To be eligible for inclusion, a company must have a market capitalization above $300 million and an average daily trading volume greater than $2m.

Morningstar’s Global Equity Research team assigns each company in the universe six thematic relevance scores, each related to a specific metaverse-related sub-theme: Metaverse Platforms, Wearable Technology and VR/AR, Enhanced Social Media, Immersive Gaming, 3D Rendering and Simulation Software, and Digital Assets & Payments.

The scores, which may be either 0, 1, 2, 3, or 4 represent a forward-looking assessment of the potential for a firm to derive significant economic benefits from that sub-theme, reflected by the percentage of total company revenue that is estimated to be derived from that sub-theme in five years.

The index selects all ‘Tier 1’ companies which are defined as firms with an aggregate exposure score of 3 or 4 across all six sub-themes and an overall revenue exposure of at least 25% towards the metaverse theme.

If less than 50 stocks have been selected, the index fills the shortfall by selecting ‘Tier 2’ companies. Selection is based on a ranking system that favours firms with higher aggregate scores, a greater number of themes with high scores, and smaller market capitalizations.

Constituents are weighted by float-adjusted market capitalization subject to individual stock caps of 6% and 3% for Tier 1 and Tier 2 constituents, respectively, and an aggregate cap of 20% on all Tier 2 stocks.

The index is reconstituted and rebalanced annually in December with buffer rules helping to limit unnecessary turnover.

As of 16 February, US-listed stocks accounted for nearly three-quarters (72.4%) of the index’s total weight with the next-largest country exposures being China (10.2%), Japan (8.2%), France (5.1%), and South Korea (3.6%).

Over half (53.2%) of the index’s sector allocation was directed toward information technology stocks with the majority of the remaining exposure allocated to communication services at 41.8%.

Notable positions included Meta Platforms (6.2%), Apple (5.7%), Nvidia (5.5%), Roblox (5.2%), NetEase (5.1%), Tencent (4.9%), and Unity Software (4.6%).

The fund is the seventh thematic ETF in the US to target the development of the metaverse. The largest of these is the $430m Roundhill Ball Metaverse ETF (METV US) which comes with an expense ratio of 0.75%, while the cheapest is the $10m Fidelity Metaverse ETF (FMET US) which costs 0.39%.

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