Roundhill Investments has introduced a new thematic equity ETF providing exposure to companies that are poised to benefit from increased growth in online betting.
The fund provides exposure to firms best positioned to benefit from increased growth in online betting.
The Roundhill Sports Betting & iGaming ETF (BETZ US) has listed on NYSE Arca and comes with an expense ratio of 0.75%.
The fund tracks the proprietary Roundhill Sports Betting & iGaming Index which selects its constituents from a global universe of publicly traded stocks (excluding China A-shares) with market capitalizations greater than $50 million.
Roundhill then uses a screening methodology that identifies firms related to the online betting theme by searching for ‘iGaming’ keywords in company filings. Roundhill defines iGaming as online wagers related to sports games, video games, or casino games.
The index is tilted towards companies offering sports betting and involves index committee classifying eligible firms as either ‘pure-play’, ‘core’, or ‘non-core’. Pure-play companies are iGaming firms with primary business models directly linked to sports betting, core companies are iGaming firms with significant sports betting units, and non-core companies are iGaming firms with small sports betting units.
The weight of pure-play companies is set at 150% of the weight of core companies which, in turn, is set at 150% of the weight of non-core firms. The weighting methodology also accounts for liquidity, reducing exposure to firms with low average daily trading volumes.
The index is reconstituted and rebalanced on a quarterly basis.
As of 3 June, the index contained 30 stocks. The US accounted for over a quarter (28.1%) of the total weight with the next largest country exposures being Malta (12.5%), a tax-advantaged domicile favoured by betting companies, Australia (12.5%), the UK (10.2%), and Sweden (7.1%).
The index leans towards small-cap firms which account for 40% of the total weight. Mid-caps make up roughly one-third and large-caps make up one-quarter of the index.
The largest single stock exposures are DraftKings (7.0%), Flutter (6.5%), Kambi (4.8%), GAN (5.8%), and Penn National (4.2%).
While the fund is unlikely to win any ESG awards, it offers investors access to a thematic story that is benefitting from lighter regulation and the ongoing migration of consumers online. According to research from betting consultancy H2 Gambling Capital, online gaming accounted for 11.3% of the global gaming market in 2018, up from 9.5% in 2015.
While restrictions on sporting fixtures due to Covid-19 has dented the gambling industry’s short-term profitability, it is unclear what the pandemic’s long-term impact will be. Although some studies appear to indicate that gambling increases during recessions, it is more widely accepted that the industry follows a cyclical pattern. A quick and sustained rebound from the virus’s economic toll would likely provide the strongest tailwind.
BETZ has been introduced on the one-year anniversary of the launch of Roundhill’s debut ETF – the Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD US). This fund tracks the Roundhill BITKRAFT Esports Index which provides exposure to companies linked to the Esports industry (organized, multiplayer video game competitions between professional players with real money prizes).
ETFs providing exposure to video gaming and Esports companies have been on a tear recently as Covid-19 drove millions of locked-down consumers to turn to these industries for entertainment. NERD is up 18.8% year-to-date (5 June), while the SPDR S&P 500 ETF (SPY US) is essentially flat (-0.2%) over the same period.