Online gaming and e-sports produce winning returns
One of the top performing sectors in ETFs over the whole period of market volatility has been the video gaming and e-sports sector. The isolating audience around the world has turned to virtual entertainment in droves.
The sector isn’t entirely new. Launched in Oct 2018, VanEck’s ESPO outperformed the S&P 500 by 10 per cent last year, achieving a return of 40 per cent, but this year looks set to improve on that with the ETF up 2 per cent year to date.
JP Lee, Product Manager with VanEck explains that there has been a huge increase in news stories and interest in the sector. “We are looking at big picture trends out there and our ETF is a pure play video gaming and esports ETF.”
Video games and esports have witnessed a sharp increase in engagement around the world since the virus broke out, VanEck’s research shows, naming a new launch of Call of Duty: Warzone which within 10 days passed 30 million players; Steam which set a new record for online concurrent players with 20 million people logged onto the service at the same time and news from Italy which has experienced a 70 per cent increase in internet usage, which was largely attributed to video gaming.
Turning to sports, VanEck’s research shows that the majority of live sporting leagues around the globe have cancelled all upcoming events, including the NBA, NCAA’s March Madness, and NASCAR and some professional esports leagues, like Activision’s Call of Duty league, have transitioned to online-only matches to allow the continuation of play and to allow fans to keep following the season.
With the cancellation of all live races until at least May, both NASCAR and Formula 1 have held electronic competitions with actual racing professionals, who used simulator rigs to race each other remotely, VanEck writes.
“Racing is unique because the machines used in the race are common training tools for both new and experienced drivers. The competitors were sitting in a seat with multiple screens, with the same basic cockpit that they would have if they were racing a real car.
“NASCAR’s race was broadcast on Fox Sports 1 and drew over 900,000 viewers, making it the most-watched broadcast TV esports event in history. Fox has committed to covering the remainder of the digital racing season on broadcast TV as it unfolds. As the shutdown of traditional sports leagues and tournament drags on, we expect to see more and more traditional sports organisations make progressive steps into the esports ecosystem that may last well after this crisis is over.”
The index underlying the ETF was built by VanEck’s wholly owned subsidiary MVIS and includes a universe of companies around the world which have over 50 per cent in revenues from e-sports. They aim to capture the top 90 per cent of that universe and then cap each position at 8 per cent at each rebalance so that big companies don’t dominate the portfolio and there is a good mix of large, medium and small cap companies.
“It’s a real global mix,” says Lee, “and a real mix of companies that have been decided on by the market.”
Investors come from a number of groups, including retail, financial advisers and asset managers who are running portfolios because the characteristics of ESPO seem to negatively correlate with the broader market, even to the sectors where the companies come from.
“There is no other portfolio where all these companies are all together so it acts differently as a diversification tool with attractive risk reward characteristics for investors who are using modern portfolio theory and want to diversify,” Lee says.
Lee points out that online interactive entertainment through social media is very important in people’s lives now.
“The demographics are changing with a younger generation coming up who are more digitally engaged and grew up using iPADs.
“I can see, going forward, it’s a fact of life that you hang out online and play video games online – sure there is a short-term pop of interest but the big trends aren’t going away.”