The VanEck Vectors Video Gaming and eSports UCITS ETF has surpassed $1 billion in assets under management, a fund size that is likely to bring it into play with a wider audience of institutional investors.
The video gaming and eSports theme has soared in the Covid-19 pandemic environment.
The milestone, which was reached on 25 January, approximately 19 months since the fund’s debut in June 2019, reflects the fund’s stunning success amidst the Covid-19 environment.
The ETF returned a whopping 121.4% between 23 March 2020 (when the S&P 500 bottomed out following the pandemic sell-off) and 2 February 2021.
Research released in November from Newzoo, a market intelligence company focused on the video game industry, forecast that the games market would have chalked up growth of 19.6%, to $174.9 billion in sales, by the end of 2020, $15.6bn higher than its prediction at the start of the year.
This growth has been credited to increased engagement on game spending during the pandemic with video games providing stuck-at-home consumers with the benefits of escapism, socialization, and time-filling. Whether this growth is sustainable remains to be seen and is dependent on many factors; however, Newzoo anticipates that the market will continue to grow, generating $217.9bn billion in sales in 2023.
On the back of these performance drivers, the ETF has experienced a surge in demand as investors have sought to participate in this booming theme – the fund has accumulated net inflows of $660m since the beginning of April 2020 with September being the only month seeing a net outflow.
Martijn Rozemuller, Head of Europe at VanEck, commented: “The strong growth of our video gaming and eSports ETF shows that this industry is seen as an interesting and viable investment opportunity by both private investors and financial professionals. Digital and online entertainment is becoming increasingly important and is now more than just another leisure activity. eSports competitions have now become a billion-dollar market in their own right with professional leagues and competitions.
“This trend has already been evident in recent years and has been noticeably accelerated by the coronavirus pandemic alongside the ensuing lockdowns and stay-at-home periods that accompanied it. Irrespective of this, we are convinced that companies such as software developers and streaming providers will continue to flourish in the long term, even after the current restrictions are lifted.”
Investment methodology
The fund is linked to the MVIS Global Video Gaming & eSports Index which is composed of companies worldwide with at least 50% (25% for current components) of their revenues deriving from video gaming and/or eSports activities.
Eligible companies include those that develop video games and related software or hardware such as computer processors, graphics cards, controllers, headsets, and video gaming consoles. Exposure to the eSports theme is obtained by including firms that offer streaming services, develop video games and/or hardware for use in eSports events, or are involved in eSports events such as league operators, teams, distributors, and platforms.
To be eligible for inclusion, a company must have a market capitalization in excess of $150m, a three-month average daily turnover greater than $1m, and a minimum trading volume of 250,000 shares each month over the last six months.
The index currently contains 25 constituents and represents at least 90% of the free-float market capitalization of the investable video gaming and eSports universe. Companies are weighted by free-float market capitalization, subject to a maximum single-stock weight of 8% to enhance diversification.
The index is reconstituted and reviewed on a quarterly basis.
Companies from the United States provide the largest contribution at 38.2% of the index weight, followed by Japan (20.7%), China (19.2%), Taiwan (7.8%), and South Korea (5.9%). The communication services sector accounts for three-quarters (73.6%) of the total exposure, followed by information technology (22.2%), and consumer discretionary stocks (4.1%).
Major positions include Nvidia (7.8%), Tencent (7.4%), Advanced Micro Devices (6.9%), Nintendo (6.5%), Sea (6.1%), Activision Blizzard (5.9%), Netease (5.2%), Bilibili (5.1%), Take-Two Interactive Software (4.9%), and Nexon (4.7%).
The fund is fully physically replicating and comes with an expense ratio of 0.55%. It is available to trade on the London Stock Exchange in US dollars (ESPO LN) and pound sterling (ESGB LN), on Deutsche Börse (VE4R GR) and Borsa Italiana (ESPO IM) in euros, and on SIX Swiss Exchange in Swiss francs (ESGB SW).
A US-domiciled version of the fund – the $870m VanEck Vectors Video Gaming and eSports ETF (ESPO US) – is available on Nasdaq. The fee is the same.
While VanEck previously was the only issuer in Europe to offer a video gaming and eSports ETF, a competitor has emerged in the form of the Global X Video Games & Esports UCITS ETF (HERU LN). Unveiled by New York-headquartered Global X in December, this fund is linked to the Solactive Video Games & Esports v2 Index and comes with an expense ratio of 0.50%.