This article is a part of InvestorPlace’s Best ETFs for 2018 contest. Robert Waldo’s pick for the contest is the ETFMG Video Game Tech ETF (NYSEARCA:GAMR).
The ETFMG Video Game Tech ETF has managed to power through half of 2018 without getting deep into the red, and it is in sixth place out of the other 10 ETFs in InvestorPlace’s Best ETFs for 2018 contest.
So far, GAMR has only gained 3% year-to-date. One look at its chart will show you that it has been a turbulent ride upward for the video-game-based exchange-traded fund, which was up 6% YTD the last time I wrote about it.
However, over the course of the past few months, some interesting developments in the video game space have given investors a better idea of what to expect from the industry over the next five or so years. And given that GAMR is an ETF that consists primarily of video game software companies (51%), its long-term narrative continues to gain strength despite its rough start to 2018.
The GAMR ETF and the Future of the Video Game Industry
You likely know about — or have at least heard about — the 2018 Electronic Entertainment Expo (E3), which happened at the start of June. E3 is where all the big dogs in the video game industry come out to show off what gamers and investors should expect from the current year in video gaming and beyond. And E3 2018 did not disappoint gamers or investors.
Key highlights include the Microsoft (NASDAQ:MSFT), Sony (NYSE:SNE) and Nintendo (OTCMKTS:NTDOY) press conferences. Here, the developers of today’s leading consoles — Xbox One, PlayStation 4 and Switch — showcased future software and services that will be available for their systems in 2018 and 2019.
At E3, Microsoft continued to solidify its future as the “Netflix of Gaming,” when it discussed developments to its Xbox Game Pass system that uses its homegrown Azure cloud technology.
The hype behind the Game Pass lies in its synchronization of several promising aspects, including expanded market potential, video game monetization through streaming and community building, and continual support for E-sports (a trend I expanded upon earlier this year).
Meanwhile, all three companies revealed new exclusive titles for their consoles, which all have good chances at becoming mega-hits, this year and next. Games like Halo Infinite, Gears 5, The Last of Us Part II and Super Smash Bros. Ultimate are exclusive game titles for their respective consoles, and they have successful and long-lasting lineages behind them.
Third-party software makers also had a strong showing with well-established names, including the showcase of Battlefield 5 from Electronic Arts (NASDAQ:EA), demonstration of Call of Duty Black Ops 4 from Activision Blizzard (NASDAQ:ATVI), and debut of the next title in its crazy-popular Assassin’s Creed franchise from Ubisoft (OTCMKTS:UBSFY).
I could go on and on about some of the other new titles and lesser-known franchises. But the point is that each of these video game developers and system makers showed gamers that gaming will continue to thrive in full force in 2018-2019 — and in some cases, beyond.
In addition to their current-gen software debuts, Microsoft and Sony confirmed that they were each in the process of developing next-generation consoles, meaning that while the industry shifts toward more streaming-based content, we can still expect a new round of console hardware in a few years.
Bottom Line on GAMR
And so the cycle will continue, all while video gaming continues to gain popularity and mainstream attention through other growth prospects like E-sports and the increasing viewership of regular gamers via TV-like streaming services such as Twitch and China’s Huya (NYSE:HUYA).
To top it all off, Piper Jaffray analysts believe that gaming will shift to 100% digital sales by 2022. And with this change in the industry, “publishers like … Activision Blizzard (ATVI) and Electronic Arts (EA) could see gross and operating margins widen by more than 10%, meaning a substantial boost to profits within 5 years.”
This, in turn, “would be more than double what each just reported for 2017,” according to analysts at Piper Jaffray. If this becomes a reality, some of GAMR’s core holdings should benefit greatly in the years ahead.
With all of that said, despite its difficult start to 2018, GAMR clearly has a lot going for it in the years to come.
We can expect to see a nice boost later on this year as the holiday season kicks in and inevitable hits like the earlier-mentioned Assassin’s Creed Odyssey, Call of Duty Black Ops 4, Super Smash Bros. Ultimate and Battlefield 5 are quickly nabbed up by millions of gamers, along with numerous other titles in the remaining months of 2018.
Robert Waldo is an Assistant Editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.
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