VanEck has launched the VanEck Vectors Video Gaming and eSports ETF (ESPO US) on NYSE Arca.
The global eSports audience is expected to reach 380 million people in 2018, according to Newzoo.
The fund provides exposure to a global equity portfolio of companies closely related to the theme of video gaming and eSports (organized, multiplayer competitions with real money prizes).
Video gaming is undergoing a period of transformative growth. According to a report by Newzoo, a market researcher for the video gaming and eSports industry, the video gaming market is predicted to generate nearly $140 billion in revenue in 2018, an increase of more than 13% from 2017.
Ed Lopez, Head of ETF product at VanEck, commented, “The video game industry is disrupting traditional media and entertainment. And with a young and highly engaged demographic, ESPO provides investors access to what we believe can be a long-term growth story.”
The current growth in the video gaming industry is not derived solely from people playing more video games on more platforms. One of the driving factors of the growth has been the emergence of eSports, which has become one of the largest spectator sports in the world with games streamed online or on major broadcast outlets like ESPN and at live gaming events held in stadiums.
The League of Legends world finals in 2017, for example, attracted more viewers than the MLB World Series, the NBA finals, and the NHL Stanley Cup finals. In 2018, the global eSports audience is expected to reach 380 million people, according to Newzoo.
“Just a few years ago, talk of sold-out stadiums, viewership in the millions, high-profile sponsors, and notable marketing arrangements would have been centred on football, baseball, basketball or hockey,” said Lopez. “But today, that talk can just as easily be applied to the world of video games and eSports. This is the future of sports and a growth story that is global in scope…eSports have brought video games out of the rec room and into the stadiums.”
The ETF obtains its exposure by tracking the MVIS Global Video Gaming and eSports Index which consists of companies from both developed and emerging markets with a market capitalization of at least $150 million and three month average daily trading volume of at least $1m.
To home in on the relevant theme, the index methodology then excludes any firm with less than a 50% revenue exposure to video gaming and eSports. Eligible companies include those that develop video games and related software/hardware, streaming services, and are involved in eSports events.
Existing constituents can see their proportion of revenue derived from the video gaming and eSports sector fall below 50% and still remain in the index as long as the proportion stays above 25%.
The index is weighted by free float market capitalisation with a single issuer cap of 8%. Reconstitution and rebalancing occurs on a quarterly schedule.
Roughly a third (33.9%) of the index is currently allocated to stocks from the US, followed closely by Japan (30.3%), with the Cayman Islands (18.9%), South Korea (7.2%) and France (4.3%) making up the next largest country exposures.
Unsurprisingly, the index is almost exclusively dedicated to stocks from the information technology sector at 95.0% of the total index weight.
Newzoo’s research suggests that established video game companies are set to benefit the most from the rise of eSports through partnerships, league ownership, sponsorships, franchising, and other marketing arrangements.
While the methodology excludes some major US-based players in the eSports industry – such as Microsoft and Amazon – due to its high revenue exposure threshold for index inclusion, the constituent list does include other well-known names in the industry.
The top stocks in the index are Nvidia (7.5%), Tencent Holdings (7.5%), Activision Blizzard (7.1%), Nintendo (6.8%), Electronic Arts (5.5%), and Netease (5.4%).
Nearly three quarters (71.2%) of the index weight is allocated to large-cap stocks (those with a market cap greater than $6 billion) with most of the remaining exposure (27.6%) in the mid-cap territory (between $1.5bn and $6bn).
ESPO comes with a net expense ratio of 0.55% due to a contractual fee waiver in place until at least February 2020. Its gross expense ratio is 0.60%.
The fund currently has one main opponent in the video gaming ETF arena, the ETFMG Video Game Tech ETF, better known by its ticker code GAMR (GAMR US). GAMR, which was initially launched under the PureFunds brand, is listed on NYSE Arca and tracks the EE Fund Video Game Tech Index. It has approximately $120 million in assets under management and comes with an expense ratio of 0.75%.