ESPO, HERO, and GAMR are three video game ETFs for Q4 2022.
The video game industry is massive and growing quickly. According to the Entertainment Software Association, there were nearly 227 million video game players in America in 2021. This number grew during the COVID-19 pandemic as more people sharply boosted their use of video games while sheltering at home.
ESports, a relatively new class of spectator entertainment, has dramatically expanded the video game market. The eSports market generated $1.1 billion in revenue worldwide in 2021. The market is expected to grow to $1.6 billion by 2024.
Investors seeking exposure to these video game trends can find several exchange-traded funds (ETFs) that hold baskets of gaming stocks. Some examples of video game companies include Electronic Arts Inc. (EA), Activision Blizzard Inc. (ATVI), and Take-Two Interactive Software Inc. (TTWO).
Gaming ETFs originally focused on casino and gambling companies, but they increasingly have broadened their scope to own stocks of companies involved in video games and eSports. While some ETFs hold shares of companies in both the video gaming and gambling industries, we focus below on funds dedicated specifically to companies in the video game industry.
There are only three ETFs focused on the video gaming industry that trade in the U.S., excluding inverse and leveraged ETFs. The best-performing video game ETF, based on performance over the past year, is the VanEck Video Gaming and eSports ETF (ESPO).
While many video game companies are considered part of the communication services sector, there is no broad benchmark that specifically tracks the video game segment. However, all three of the U.S.-traded video game ETFs have significantly underperformed the broader market over the past year. As of Aug 18, 2022, the video game ETFs have all posted total returns of around -20%, well below the S&P 500’s total return of -2.8%.
We examine the three video game ETFs below. All numbers below are as of Aug. 18, 2022. In order to focus on the funds’ investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
ESPO tracks the MVIS Global Video Gaming and eSports Index, an index of companies involved in video game development, eSports, and related hardware and software providers. The index contains only companies that derive at least half of their total revenues from video gaming and/or eSports offerings. Communication services companies make up about three-quarters of the ETF’s invested assets, with information technology names making up the bulk of the remainder. U.S.-listed companies represent over 40% of the portfolio, followed by those based in Japan and China.
The fund largely comprises large-cap growth stocks. ESPO’s top three holdings are NVIDIA Corporation (NVDA), a multinational technology company that designs graphics processing units (GPUs); Advanced Micro Devices Inc. (AMD), which manufactures semiconductors for a variety of applications; and Activision Blizzard, a leading video game developer and publisher.
HERO tracks the Solactive Video Games & Esports Index, designed to gauge the performance of companies in the global video games and eSports markets.
The ETF provides exposure to companies that develop or publish video games, are involved in content streaming and distribution, own and operate within eSports leagues, or make hardware for the industry. Over 92% of the fund’s holdings operate within the communication services sector, with much of the remainder operating within the information technology sector. HERO also offers broad geographical diversification, with the U.S., Japan, and China representing the three largest geographical categories.
The fund is focused on growth stocks across the market-cap spectrum. HERO’s top three holdings are Class A shares of Roblox Corp. (RBLX), which operates an online entertainment platform; Unity Software Inc. (U), creator of a platform for 3D content; and video game developer Take-Two Interactive Software Inc.
The first ETF to aimed at the video game industry upon its launch in 2016, GAMR seeks to track the EEFund Video Game Tech Index. The fund includes companies from a variety of segments involved in bringing video games to your living room, including game publishers and retailers as well as manufacturers of gaming consoles and semiconductors. In terms of country exposure, U.S. companies make up around 30% of the fund’s portfolio, followed by companies based in Japan and Korea.
GAMR’s top holdings Class A shares of Roblox Corp., described above; Class A shares of GameStop Corp. (GME), a retailer of video games and gaming products that was recently at the heart of a meme stock frenzy; and Unity Software Inc., also described above.