Last week the ETF industry saw another video game thematic ETF, the Global X Video Games & Esports ETF HERO, join the melee. The launch of HERO marks the second ETF launch in this category in 2019 and the fifth video game ETF to enter the US market. But while the video game ETF competition is heating up faster than a Mario Kart competition, overall investor reception to these names has been glitchy. Between all five ETFs (VIDG, GAMR, ESPO, NERD and HERO) there is only a total of $140M in AUM. The table below aggregates flow data for VIDG, GAMR, ESPO, NERD and HERO. In total, these ETFs have only gathered $24.9M inflows so far this year. In comparison, the 6 ETFs ETFLogic has identified in the marijuana investment theme have amassed $617.3M in flows YTD.
| Net Flows – YTD | $24.9M |
| Net Flows – 3mo | $13.2M |
| Net Flows -6mo | $16.9M |
Flows as of 2019.11.11
There are no cheat codes to gathering assets under management (AUM), and major institutions aren’t keen on plugging in when it comes to betting on the future of the entertainment industry. But for thematic products, ETFs issuers often rely on the interest of retail investors anyways. So what exactly is holding back retail investors from picking up the controller?
It feels like the majority of investors – even traditional sports fanatics – might not fully understand the phenomenon that is esports and the meteoric rise it has seen in the past few years. SNL perfectly summed up this sentiment with Chance the Rapper’s latest skit appearance.
Here’s some data to prove that this goes beyond just a passing trend. Market intelligence firm newzoo estimates that the total video games market will reach $152 Billion dollars in 2019, with an 11% year over year growth from 2012. This is driven by the increase in live streaming content – which has rapidly taken over as one of the most consumed forms of online content in the world. To give you an idea how popular, Twitch (the leading video game live-streaming website) is the 40thmost popular website in the entire world*, beating out even the most popular adult website. Total esports viewership reached 380M in 2018, and is expected to see a 14% growth in viewership in 2019. An interesting datapoint from newzoo suggested that 56% of US Gen Z men (ages 13-21) said nontraditional sports are more relevant to their generation, compared to 44% who said the same for traditional sports.
*Per Alexa Global web rankings
All of these statistics have already caught the eyes of private investors, who invested an estimated $4.5B in video games and esports in 2018. Similar to traditional sports, there is significant revenue tied to esports sponsorships, media rights, advertising, merchandising, and publisher fees. While your average investor doesn’t have access to the same private investment opportunities, these video game thematic ETFs offer similar exposure to public companies involved in the industry.
Another theory is that those with a passion for the esports industry are simply too young, and don’t have either the ability or desire to invest in these ETFs. With the overwhelming majority of esports viewers being young males, they just might not have access or interest in investing to begin with.
Could lack of investor interest be due to fear of regulatory crackdown? Earlier this year the White House Administration pointed a finger at violent video games as a major cause of the mass shootings epidemic in the US and even threatened to impose regulations on the industry. Touching back on the marijuana thematic ETF comparison, he marijuana industry is incredibly tied up in regulatory red tape from multiple government bodies, and by that argument there should be even less interest in marijuana ETFs compared to video games. But strong inflows into marijuana-focused funds speaks for itself.
Whatever the reason is for the lack of investor interest, ETF issuers have clearly noticed the industry’s growth and are working to put products on the market that offer this unique and diversified exposure. Hopefully investors will level up before these ETFs run out of lives.
Bonus: Comparison of NERD, GAMR, HERO, ESPO
Below is outlined some basic data on the 5 thematic ETFs in the table below from our free market data tool. I’ve left out trading and performance numbers to provide the most unbiased view on the ETFs, but you can access the full comparison here. ETFLogic also has more comprehensive tools on the Insights platform, which you can contact sales@etflogic.io to gain access to.
| Ticker | NERD | GAMR | HERO | ESPO | VIDG |
| Issuer | Roundhill Investments | ETF Managers Group | Global X | Van Eck | Defiance |
| Expense Ratio | 0.25% | 0.75% | 0.50% | 0.55% | 0.30% |
| Inception Date | 6/4/19 | 3/8/16 | 10/25/19 | 10/16/18 | 8/1/18 |
| # Constituents | 25 | 85 | 40 | 27 | 47 |
| Top 10 Weight | 52.94% | 28.89% | 54.86% | 61.26% | 43.73% |
