Nintendo’s Pokèmon Go powers performance of video gaming ETF

Aug 17th, 2016 | By | Category: Equities

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The world of Nintendo gaming and Pokèmon Go has taken smartphone users by storm this summer, propelling the world’s only video gaming-focused ETF into the spotlight.

Nintendo soars with Pokèmon Go release; Japanese ETFs up more than 18% year to date

The Pokémon Go craze has proved to be a shot in the arm for ETFs with exposure to Nintendo.

The newest craze, Pokèmon Go, an augmented reality game where users wander the streets to “catch” virtual characters and throw around Pokèballs, fuelled shares in Tokyo-listed Nintendo to more than double in mid July.

The smartphone game has achieved some incredible feats, including encouraging teenagers to leave the house, but it has also had a positive impact on ETFs with exposure to it.

The ETF with the greatest allocation to Nintendo is the PureFunds Video Game Tech ETF (NYSE ARCA: GAMR).

Its largest holding is Nintendo, at around 6.5%, and performance has understandably been strong. It is up 7% since the Pokèmon Go launch and has delivered a positive return of more than 20% since inception in March, compared to about 9% for the S&P 500.

GAMR is currently the only such ETF in the market, this is despite PureFunds’ claim that the gaming industry generates close to $100bn in annual revenue and serves more than 100 billion people. The ETF is linked to the EE Fund Video Game Tech Index.

Speaking at the ETF’s launch back in March, Ted Pollak, President of EE Fund Management, the firm behind the index, said: “Video games provide consumers with compelling cost-per-hour entertainment value, and attractive margin opportunities for software developers. The demands for processing and graphics capability motivate semiconductor companies to produce faster and more efficient chips. Platform makers continually improve their systems. Peripheral and component makers enjoy repeat sales of input devices, accessories, and computer parts. New paradigms like virtual reality, free-to play, and game streaming expand opportunities and keep innovation fresh. All this adds up to a dynamic and evolving industry landscape with multiple paths for potential future growth.”

Investors should note GAMR is relatively concentrated and currently consists of just 36 listed companies around the world that are related to video gaming. It is also relatively expensive at 0.75% annual fees.

Pokèmon Go has not only reawakened a certain high-school nostalgia of thirty-somethings and provided a short-term revenue stream, it has also made a swathe of potential new Nintendo consumers aware of its upcoming and mysterious NX console, out next March.

This, combined with other positive tailwinds such as the proliferation of HD and 4K displays and motion tracking, suggests the continued outlook for GAMR could be positive.

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