Franklin Templeton has launched a new thematic equity ETF in Europe targeting companies worldwide that are shaping the development of the metaverse.
The metaverse refers to a future iteration of the internet comprising a perceived virtual universe.
The Franklin Metaverse UCITS ETF has been listed on the London Stock Exchange in US dollars (METE LN) and pound sterling (METU LN) as well as on Xetra (FLRA GY) and Borsa Italiana (METE IM) in euros.
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.
Combining aspects of social media, online gaming, augmented & virtual reality, e-commerce, and blockchain technology, the metaverse is expected to influence many aspects of people’s lives including how they interact, socialize, learn, shop, work, and play virtually.
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.
Dina Ting, Head of Global Index Portfolio Management, Franklin Templeton, commented: “Society has already experienced three foundational changes in the way that technology operates and how it’s been delivered since the early 1970s. This exciting fourth wave is now emerging, enabled by blockchain technology.
“Many big tech companies have already pivoted towards the metaverse for their next major area of development in the same way that many did at the inception of the internet. There appear to be tremendous real-world business opportunities for investment in this space considering that by 2030 the e-commerce market could grow to between $2.0–$2.6 trillion.”
Methodology
The fund is linked to the Solactive Global Metaverse Innovation Index which selects its constituents from a global universe of stocks with market capitalizations above $100 million and average daily trading volumes greater than $1m. Chinese A-shares are not eligible for inclusion.
The index first conducts a light ESG screen by removing violators of UN Global Compact principles and firms with operations linked to controversial weapons.
Security selection is driven by Solactive’s proprietary natural language processing algorithm, called ARTIS, which identifies firms linked to a specific theme by screening publicly available information such as financial news, business profiles, and company publications for appropriate keywords.
With reference to the metaverse theme, the algorithm is programmed to identify companies with business operations linked to the following seven industry categories: metaverse technologies; metaverse platforms; metaverse devices; interchange standards; data processing; blockchain technologies; and digital asset platforms.
The index selects the 60 stocks with the highest ARTIS thematic relevance scores and weights them using a combination of float-adjusted market capitalization (60%) and thematic relevance (40%) which is determined by a company’s rank in terms of its thematic relevance score.
Reconstitution and rebalancing occur on a semi-annual basis.
As of 6 September, over four-fifths of the index’s total weight was allocated to stocks listed in the US. Notable positions included Apple (5.1%), PayPal (4.5%), Alphabet (4.4%), Meta Platforms (4.2%), Microsoft (4.1%), Qualcomm (3.7%), Take-Two Interactive Software (3.7%), Nvidia (3.6%).
Caroline Baron, Head of ETF Business Development, EMEA, Franklin Templeton, said: “We are delighted to be an early mover in this space and thus provide European investors with access to a diversified pool of cutting-edge companies across key metaverse segments at a low cost. Our new ETF allows investors to diversify their core holdings and satellite thematic sleeves in their existing portfolios with unique exposure and participate in the expected secular growth of the underlying megatrend that is digitization.”
There are two existing ETFs in Europe that also target the metaverse investment theme; however, Franklin Templeton’s ETF is cheaper than its rivals with an expense ratio of just 0.30%.
In contrast, the ETC Group Global Metaverse UCITS ETF has an expense ratio of 0.65%, while the Roundhill Ball Metaverse UCITS ETF costs 0.59%. Both ETFs debuted earlier this year and neither have yet to accumulate significant assets under management.