Global X on living in ‘beyond ordinary’ times
Global X, with a range of ETFs that it describes as ‘beyond ordinary’, enjoyed USD1.3 billion in positive net inflows last month, as its ETFs based on cloud computing, gaming and cyber security flowered during the Covid-19 lockdown.
Global X, part of the Mirae Asset Global Investments group, has close to USD13 billion under management in ETFs. Jon Maier, Chief Investment Officer at the company says that the firm got off to very good year, right up until February 19th, when, as he puts it: “The market got away from us. That evolved, through a lot of market dislocation, into our Covid-19 experience of lockdown.
“We are now in an era of staying at home, which includes working, educating our children and socialising, and having fun. The technology needed to perform many of activities require solutions provided by companies that are a part of our suite of ETFs including cloud computing, ecommerce, education, cyber security and video game and e-sports.”
“Investors have had the opportunity to capitalise on themes at just the right time, but the technology was evolving prior to Covid, and will continue past this current period.”
The thematic portfolios which Maier manages in the space have beaten out all the benchmarks.
“Anecdotally, I hear and believe that getting back to normal is going to be a lot more difficult than people expect, especially if you have school age children.
“I believe we won’t be back to business as usual until there is an effective treatment or a vaccine.”
In terms of education, schools in NYC, where Maier is based, are just now deciding on whether they can resume normal school life in the autumn, which has a knock-on effect for parents who are attempting to work from home.
“We have just launched an Education ETF because we will all see more varied models of education until kids go back to full-time education and many of these technologies will be incorporated going forward,” he says.
HERO, Global X’s gaming ETF, has seen extraordinary growth and performance over the year. “Right now, you think of video games as something that is for a younger person, but through this period there is a cross generational use of video games and they are being used to communicate with friends we know or do not know, to engage with others. Whether it’s PlayStation, Nintendo or Xbox, there is an evolution towards cloud-based access which makes the technology even more accessible to anyone who is interested. The revenue derived from video games and e-sports eclipse revenues from movies and professional sports,” Maier says.
Gamers are monetising their streams, Maier says and the big streaming platforms, such as Huya in China, have 800,000 active streamers, with 150 million active users.
In their research note on video Games & Esports, Global X writes: “Video game and esports-related spending and attention surged during COVID-19 stay-at-home orders as consumers looked for immersive social experiences they could enjoy while distancing. We can look to esports’ emergence as an example of this. Forced to suspend in-person sporting contests, many leagues turned to the virtual realm. For example, the Formula 1 Virtual Grand Prix Series, which featured current F1 drivers and myriad celebrities, reached 85 million views around the world.
“Other sports, too, like basketball, football, soccer, and baseball, found esports audiences during the pandemic, reaching millions of individuals of all ages and backgrounds. In-person sporting events may not be in the cards for a while and, in our view, this should continue to serve as a tailwind for streaming and esports’ continued march into the mainstream. However, we see more than just COVID-induced momentum. As the audience for gaming expands and additional products and services like next-gen consoles and cloud gaming platforms roll out, we expect adoption to accelerate and addressable markets to widen.”
Turning to e-commerce, Maier says: “As we operate at home, there is a refinement of how we purchase, grocery stores are penetrating the online space, because they just have to. There are also newer companies that haven’t yet made it to the public market who supply restaurants but are now moving downstream to retail. The longer we stay at home, the greater the market penetration we expect.
In their research note on e-commerce, Global X comments that that the strategy is nearly two decades old but just 12 per cent of total retail sales in the US come from the internet.
“Why so little? While online retail penetration is strong many areas, others, like health, auto, and food/beverage, have had trouble gaining e-commerce traction. Online grocery sales, for example, represented just 3 per cent of total grocery purchases before Covid-19 hit the US.
“But over the past few months, the pandemic accelerated adoption in these areas. Online grocery sales surged 200 per cent, as consumers quickly formed new shopping habits to stay within their homes. And during their Q1 earnings call, Tesla attributed online car purchases to some of their sales numbers.”
Looking forward, Maier says that while we saw a huge drop in GDP in the second quarter, it was entirely expected and one that was somewhat self-imposed to stop the economy with the purpose to inhibit the spread of the virus.
“I think you will see micro developments in the economy depending on the effectiveness of containment and then there is the US election coming up, which depending on the outcome will have impact on policy.
“The next few months will be very interesting, unprecedented as some often say.”