‘NERD’ ETF Debuts

June 04, 2019

Today ETF newcomer Roundhill Investments, a registered investment advisor focused on creating financial products for the next generation of investors, launched the market’s second fund to target the esports space. The Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD) covers video game developers, platforms, and event and league operators, among other corners of the online gaming space.

NERD comes with an expense ratio of 0.25% after a 0.25% waiver set to last through June 30, 2020. It lists on the NYSE Arca.

“Over the past few years, the gaming landscape has evolved,” said Roundhill CEO Will Hershey in a press release, quoting data from Newzoo. “Technological advances in streaming have transformed video games into spectator sports, with more than 450 million viewers worldwide.” He also notes that $4.5 billion was invested in esports last year.

“My favorite statistic is that, in 2017, more people watched gaming and esports than HBO, Netflix, Hulu and ESPN combined,” Hershey added. He says his firm defines esports as “competitive gaming in front of a viewing audience.” That definition can encompass watching a favorite competitor on your home computer as well as attending a championship game at a stadium. 

Methodology

According to the fund prospectus, the underlying index can include companies that are video game developers or publishers; operate video game streaming platforms; organize video game tournaments and related events; operate or own video game teams; provide gaming hardware and technology; and those involved in other aspects of the digital entertainment industry. Companies are classified as pure play, core or noncore.

Eligible companies are scored on how involved they are in the digital entertainment space based on keyword searches of regulatory filings, analyst reports and other publicly available sources.

The highest-scoring companies are classified as pure plays, while the lowest scoring companies are excluded from the index. The number of pure-play companies generally determines the total number of components in the index, with 25 companies set as the minimum, the document says.

According to Hershey, companies’ scores also influence their weightings, with the pure-play stocks weighted at 1.5X the core stocks, which are weighted at 1.5X the noncore stocks.

There’s a heavy influence of non-U.S. stocks in the ETF, as online gaming as a spectator sport really first found its foothold in Asia, and is only just getting stated in the U.S. Hershey notes, “Much like traditional sports, the games that are popular here are different from the ones that are popular in the EU, and are different from the ones that are popular in Asia.”

Last year, VanEck launched its own esports ETF, the VanEck Vectors Video Gaming and eSports ETF (ESPO). The fund comes with an expense ratio of 0.55% and currently has nearly $24 million in assets under management.

Contact Heather Bell at [email protected]

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