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An ETF For Gaming And Metaverse Bulls

Published 2022-01-25, 04:34 a/m

Microsoft (NASDAQ:MSFT) recently announced the acquisition of the leading video game publisher Activision Blizzard (NASDAQ:ATVI). The all-cash deal reported on Jan. 18 values ATVI stock at $95 per share, giving it more than a 45% premium over the previous trading day’s closing price.

Activision Blizzard is well-known for its popular franchises, including Call of Duty, Crash Bandicoot, Diablo, Guitar Hero, Overwatch, and Warcraft. However, Wall Street regards Microsoft’s move as more than a bet on the gaming world, but rather as a giant step into the metaverse.

The Battle For The Metaverse

2021 saw a growing emphasis on mixed reality (MR), where physical and digital worlds increasingly merge. As most readers would remember, in October 2021, Facebook (NASDAQ:FB) changed its name to Meta Platforms, putting the investment theme in the spotlight.

The size of the global metaverse market was around $22 billion in 2020. But between 2021 and 2030, it is forecast to grow at a compound annual growth rate (CAGR) of over 41.5%.

In addition to Meta Platforms stock, shares of other companies expected to play a leading role in this expansion have gained traction. They include Adobe (NASDAQ:ADBE), Autodesk (NASDAQ:ADSK), Matterport (NASDAQ:MTTR), Roblox (NYSE:RBLX), Unity Software (NYSE:U), as well as many semiconductor names, such as NVIDIA (NASDAQ:NVDA).

We should also mention that metaverse-themed digital assets, including Axie Infinity, Decentraland, Enjin Coin, and The Sandbox, have seen eye-popping returns in the past year. They are up about 7,500%, 1,000%, 275% and 3,000%, respectively. Despite recent declines in cryptocurrencies, we can expect to hear more of such altcoins in the coming years.

Yet legal observers are debating whether Microsoft’s potential acquisition would get regulatory approval, not only in the US but in other jurisdictions as well. As they highlight concerns, many analysts, for example, point to graphics card heavyweight NVIDIA’s expected purchase of chip name Arm from the Japanese tech group SoftBank (OTC:SFTBY). The UK’s Competition and Markets Authority is currently looking into the deal to block it possibly.

Meanwhile, if Microsoft’s acquisition faces no legal hurdles, the transaction is expected to close during Microsoft’s fiscal year 2023. Regardless of the outcome, Wall Street now expects the battle for the metaverse to grow in the coming years. Put another way, smaller gaming and related entertainment companies are likely to center the many tech giants’ interest in this space.

We recently covered two exchange-traded products (ETPs) that could benefit from developments in the metaverse. They are the MicroSectors™ FANG+™ ETN (NYSE:FNGS) and the Roundhill Ball Metaverse ETF (NYSE:META), the only pure-play metaverse fund on Wall Street at this point. In future months, other names in the META fund could also become acquisition targets like Activision Blizzard.

The recent decline in tech stocks means some of these names now offer better value for buy-and-hold investors. Today’s article introduces an exchange-traded fund (ETF) that could appeal to a range of readers.

Roundhill BITKRAFT Esports & Digital Entertainment ETF

  • Current Price: $22.62
  • 52-week range: $22.62 - $39.38
  • Expense ratio: 0.50% per year

The Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSE:NERD) invests in eSports, gaming, and digital entertainment businesses worldwide. The fund was first listed in June 2019.

NERD Weekly Chart

NERD, which has 38 holdings, tracks the Roundhill BITKRAFT Esports Index. The top 10 holdings account for close to 44% of over $57 billion net assets.

In terms of the sub-sectors, we see games (48.1%), media (22.4%), and hardware (22.3%). Over a quarter of the companies come from the US. Next in line are those from China (18.8%), Japan (11.9%), South Korea (11.4%) and Singapore (5.9%).

Among the leading names are Activision Blizzard, Sweden-based eSport and gaming group Modern Times (ST:MTGa); Corsair Gaming (NASDAQ:CRSR), which offers gear and equipment for gamers; leading Chinese entertainment conglomerate Tencent Holdings (OTC:TCEHY), which owns numerous online platforms and apps; and DouYu International (NASDAQ:DOYU), which operates live-streaming Chinese platforms.

In the past 12 months, the ETF is down over 33% and has also lost 8.9% since the start of 2022. The fund hit a 52-week low yesterday.

Many of these companies benefited from the monetization of eSports and gaming, especially during the stay-at-home days of the pandemic. However, following the vaccine rollout, investors have taken money off the table.

Yet, despite the recent declines in shares prices, online entertainment via gaming platforms is likely to be a megatrend that will benefit from the metaverse. Therefore, long-term investors might want to research the fund further.

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