Metaverse ETFs are Losing their Place to Gaming ETFs Now

Metaverse EFTs arrived last year shortly after the term entered our lexicon and became a favourite of venture capitalists

Recently, Metaverse has gained lots of traction but isn't performing as well on the market as last year's model. Metaverse exchange-traded funds (ETF) arrived last year shortly after the term entered our lexicon and became a favourite of venture capitalists. Because the metaverse is simply a mashup of gaming and crypto, this metaverse ETFs look a lot like eSports or gaming ETFs, which were launched a few years ago. They look like them because the metaverse is an ambiguous term; the shared online experience, that is envisioned in Neil Stephenson's science fiction novel "Snow Crash", already exists on many multiplayer gaming platforms. Metaverse tokens don't yet have listed proxies, so metaverse ETFs compensate for that by putting in publicly listed crypto companies like Galaxy (GLX.TO) or Block (SQ), the former Square. And that's where the problem starts. Gaming tech heavyweights, like GPU designer Nvidia (NVDS) or game engine developer Unity, are in both baskets and haven't performed well year-on-year but the inclusion of the likes of Galaxy Digital – down over 60% year-to-date and planning a stock buyback – really sinks the metaverse ETF.

What Is a Metaverse ETF?

An Exchange Traded Fund (ETF) can be defined as a basket of securities that is tradeable on the stock market. It combines the characteristics of traditional shares and mutual funds, as it is a collection of securities spread across companies like a mutual fund, but can be traded as a bundle on the stock market, just like shares.

ETFs are mostly passively managed, which means that fund managers do not regularly buy and sell the securities in ETFs to return a profit and increase their value. Rather, they identify potentially high-value assets and invest in them for the long term, which is what makes it a good fit for emerging technologies like the Metaverse.

Metaverse ETFs are themed funds that invest in the best performing Metaverse and related stocks available on the exchange. They have low to moderate diversity and seek to gain from early and high-value investments in the burgeoning Metaverse sector.

Given the recent meteoric rise of interest in the Metaverse, they are an attractive investment opportunity for moderate to high-risk-appetite asset managers. Over the last year, a number of options have emerged for those interested in Metaverse ETFs.

Pros and Cons of Metaverse ETFs

Metaverse ETFs are a convenient and attractive investment vessel for technology investors in 2022. It provides access to a fast-growing sector, which is still in its infancy so that investors gain from an early mover advantage.

On the downside, the Metaverse is still an evolving technology and there is no guarantee about the timeline of its release or market adoption rates. As it is, ETFs operate in non-diversified and high-risk asset classes and combined with the risk-prone nature of the Metaverse, it could prove challenging for investors.

Also, the SEC has typically taken a not-so-bullish approach to emerge technologies and rejected multiple bitcoin ETFs last year. It could be slow in approving Metaverse ETFs, which means that investments become channeled only via a handful of options available.

Examples of Gaming Industry ETFs

The VanEck Vectors Gaming ETF (BJK) is one of the largest gaming ETFs with roughly US$74 million in assets under management as of December 2020. This thematic fund seeks to replicate the price and yield performance of the MVIS Global Gaming Index, which is composed of companies involved in casinos and casino hotels, sports betting, lotteries, gaming services, gaming technology, and gaming equipment.

Gaming industry ETFs sometimes refer to video games and eSports. ETFMG, which describes itself as a provider of thematic ETFs, launched the Wedbush ETFMG Video Game Tech ETF (GAMR) in March 2016. This fund tracks the EEFund Video Game Tech Index, which is composed of companies involved with video game technology, game development, console and chip manufacturing, and game retailers.

Benefits of a Gaming Industry ETF

Gaming ETFs generally offer investors the same benefits as broad market ETFs such as low expense ratios, decent liquidity, flexibility, and tax efficiency. They are traded on major national exchanges and can be sold short or bought on margin.

Investors who want exposure to the gaming sector might consider a gaming ETF rather than putting all their eggs in one basket. However, while ETFs are associated with lower risks and volatility compared with individual stocks, investors should still follow due diligence before buying.

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