For the most part, video game stocks are performing well in 2019. Shares of Electronic Arts (NASDAQ:EA), one of the largest U.S.-based video game makers, are up 24% year-to-date, but the industry also has some laggards. Activision Blizzard (NASDAQ:ATVI), one of EA’s most direct competitors, sees its shares lower by 2% this year.
Globally, the video game industry is a $140 billion business and it is growing.
“Video game revenue in 2018 reached a new peak of $43.8 billion, up 18 percent from the previous years, surpassing the projected total global box office for the film industry, according to new data released by the Entertainment Software Association and The NPD Group,” reports TechCrunch.
The video game industry, while expansive, is also highly fragmented. So while there are a growing number of thematic exchange-traded funds (ETFs) on the market today, the number of video game ETFs, as readers will see here, is quite low. In fact, there are just two funds resembling dedicated video game ETFs.
With that in mind, let’s look at some of the funds, including some stretches, that have credibility as video game ETFs.
ETFMG Video Game Tech ETF (GAMR)
Expense Ratio: 0.75%, or $75 annually per $10,000 invested
The ETFMG Video Game Tech ETF (NYSEARCA:GAMR) turned three years old last month and is the first dedicated video game ETF to list in the U.S. For an ETF focused on a somewhat narrow niche, GAMR has been relatively successful as highlighted by the fund’s $100 million in assets under management. Home to almost 80 stocks, this video game ETF tracks the EEFund Video Game Tech Index.
GAMR is reflective of the global nature of the video game industry as the fund provides exposure to 14 countries. The video game ETF’s largest geographic weights will not surprise seasoned gamers. The U.S., Japan, South Korea and China combine for almost 78% of the fund’s weight. GAMR provides exposure to several compelling video game themes, including mobile gaming and digital downloads.
“The percentage of digitally downloaded video games rose from 31% in 2010 to 74% in 2016,” according to ETFMG. “This is expected to climb to nearly 93% by 2021.”
This video game ETF is up nearly 17% year-to-date.
VanEck Vectors Video Gaming and eSports ETF (ESPO)
Expense Ratio: 0.55%
In the video game ETF realm, the VanEck Vectors Video Gaming and eSports ETF (NYSEARCA:ESPO) is the most direct competitor to the aforementioned GAMR. ESPO, which debuted last October, is not just a video game ETF. The fund is one of the best avenues for exposure to the booming e-sports market.
ESPO tracks the Global Video Gaming and esports Index. Many of the dedicated esports companies are not yet publicly traded, so ESPO’s 25 holdings run the gamut of video game makers, such as Activision Blizzard and Electronic Arts, semiconductor makers and console makers. ESPO’s components must derive at least half their sales from video games or esports to be included in the fund.
Up 20.28% this year, this video game ETF has recently been hitting new highs, reflecting investors’ expectations for the growing esports market.
“Competitive video gaming audience expected to reach 454 million people globally in 2019,” according to VanEck. “Esports revenue growth has increased almost 40% yearly since 2015, supported by a young, affluent audience.”
iShares PHLX Semiconductor ETF (SOXX)
Expense Ratio: 0.47%
No, the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) is not a video game ETF, but remember, there are not many video game ETFs and some semiconductor makers are heavily involved in the video game and competitive gaming markets. That includes Nvidia (NASDAQ:NVDA), the largest holding in SOXX.
Nvidia rival Advanced Micro Devices (NASDAQ:AMD) is also making inroads in the video game space, having recently reported that its chips will power Google’s online gaming platform known as Stadia. Shares of Nvidia and AMD combine for about 13% of SOXX’s weight.
While that is not enough to make this chip fund a video game ETF, it is enough to make SOXX an appropriate option for investors looking for indirect video game exposure via the ETF wrapper. SOXX is higher by 29% this year.
First Trust Cloud Computing ETF (SKYY)
Expense Ratio: 0.60%
Some of the largest companies in the U.S., such as Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), have significant video game exposure, but because video games are not the primary drivers of those companies’ revenue, they do not reside in video game ETFs.
While it is not a proper video game ETF, the First Trust Cloud Computing ETF (NASDSAQ:SKYY) has some legitimated video game credibility. Mobile game maker Zynga (NASDAQ:ZNGA) is SKYY’s largest holding at a weight of 6.18%. Facebook (NASDAQ:FB), a platform for social gaming, represents nearly 5% of SKYY’s weight while Amazon and Microsoft combine for nearly 7% of the fund’s weight. Additionally, there are myriad cloud applications in the video game universe.
“On trend with community gaming, the increasing preference for multiplayer gaming is pushing momentum in the cloud gaming industry,” according to ETMG. “Cloud gaming allows gamers access to supercomputers that can render high-end games, exceeding the processing power that normal hardware players are capable of.”
iShares Expanded Tech-Software Sector ETF (IGV)
Expense Ratio: 0.47%
As its name implies, the iShares Expanded Tech-Software Sector ETF (CBOE:IGV) is a software fund, not a dedicated video game ETF. However, IGV does have ample video game exposure because many companies in this space are software makers.
Microsoft is IGV’s largest holding at a weight of just over 8% … a relevant point because the company is the maker of the Xbox console. Additionally, a point that gets overlooked because of Microsoft’s sprawling businesses, including business software and the cloud, is that the company is actually the fourth-largest video game company in the U.S.
Video game makers Activision, Electronic Arts and Take-Two Interactive Software (NASDAQ:TTWO) combine for nearly 7% of IGV’s weight.
Global X Social Media ETF (SOCL)
Expense Ratio: 0.65%
The Global X Social Media ETF (NASDAQ:SOCL) is a valid alternative for a traditional video game ETF for several reasons. China’s Tencent Holdings (OTC:TCEHY) is SOCL’s largest holding at a weight of nearly 13% and that company is a significant footprint in China’s growing video game market. In fact, China is the world’s largest video game market.
Bolstering the case for video game growth in China is that the government there approved nearly 800 games in the first quarter, most of which were not traditional poker or gambling-related board games. SOCL’s video game ETF status is boosted by exposure to Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Facebook and Zynga, among others.
With so many gamers turning to multi-player games and using these games to interact with friends and make new acquaintances, the intersections of social media and gaming are potentially limitless and highly lucrative for advertisers and game makers. Simply put, SOCL is a social media fund, but its video game ETF credentials have the potential to exponentially grow in the years ahead.
Communication Services Select Sector SPDR (XLC)
Expense Ratio: 0.13%
The Communication Services Select Sector SPDR (NYSEARCA:XLC) is the first ETF dedicated to the communication services sector, which debuted last year. As such, this fund features massive exposure to Facebook and the two share classes of Alphabet. Those stocks combine for almost 43% of XLC’s weight, giving this fund video game ETF viability.
Activision Blizzard is also a top 10 holding in XLC and Electronic Arts and Take-Two also reside in this fund. XLC would see its video game ETF credentials increase if Netflix (NASDAQ:NFLX) and Walt Disney (NYSE:DIS), which combine for 10.26% of the fund’s weight, bolster their video game exposure.
Ultimately, XLC has some video game exposure, but the average market value of its 26 components is $358.69 billion, meaning many of these companies’ bottom lines are not going to be materially altered by video game exposure over the near to medium term.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
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