ETF Of The Week: New Gamer Fund

October 19, 2018

Earlier this week, VanEck rolled out the VanEck Vectors Video Gaming and eSports ETF (ESPO), a fascinating launch that covers an often misunderstood, even dismissed, segment of the entertainment industry.

In particular, ESPO aims to capitalize on an emerging trend in video games: eSports—organized, multiplayer video game tournaments—often telecast over online streaming services, such as Twitch or HUYA.

The eSports industry is now worth hundreds of millions of dollars, with many experts projecting it will reach $1 billion over the next few years. Some even consider it "the future of sports," as Michael Cohick, VanEck's director of ETF product marketing, told ETF.com earlier this week.

According to VanEck, some 380 million people worldwide are expected to watch eSports matches this year alone.

ESPO aims to capture that growth: Its benchmark index tracks companies generating at least half their revenues from the video gaming and eSports industry. Not only does ESPO track the companies making games and their related hardware and accessories, it also tracks companies offering streaming services and those involved in the production of eSports events.

Too Broad An Index?

In practice, however, ESPO offers a deceptively broad take on the gaming space. Nintendo, for example, is one of the fund's top holdings, despite that company having zero presence in the eSports industry.

Meanwhile, Amazon and Microsoft, which are significant players in the eSports world, are omitted, because eSports does not contribute a large enough portion of their total revenues to be included in the index.

"There are huge misses," wrote ETF.com managing director Dave Nadig in this week's Live Chat. "HUYA, to pick one firm, is the largest streaming platform for eSports outside the U.S.—it makes hundreds of millions a year and trades here as an ADR. It's probably the single most obvious holding, and it's completely absent."

‘ESPO,’ ‘GAMR’ Offer Different Takes

ESPO is not the only video game ETF available to investors. The ETFMG Video Game Tech ETF (GAMR) has been on the market for over two years now, accruing $121 million (read: "ETF Explainer: GAMR").

The two funds couldn't be more different. For starters, GAMR holds almost three times as many companies: Its portfolio contains 68 stocks, compared with ESPO's 25.

Also, GAMR's holdings skew more toward the producers, publishers and retailers of video games, rather than eSports-specific companies. GAMR's top holdings include U.S. game developer Take-Two Interactive Software (TTWO), at 3%; semiconductor giant Advanced Micro Devices (AMD) at 3%; and South Korean developer NCSoft, at 3%.

ESPO, meanwhile, holds Chinese conglomerate Tencent Holdings (TCEHY), at 8%; chipmaker NVIDIA (NVDA) at 7%; and U.S. game developer Activision Blizzard (ATVI) at 7%.

ESPO Cheaper Than GAMR

ESPO has an expense ratio of 0.55%, which means it undercuts GAMR significantly. (GAMR's expense ratio is 0.82%, some of which is due to ongoing legal troubles its issuer is facing (read: "Investors Shoulder ETFMG's Legal Costs").

Still, fees aren't everything, especially when the underlying funds hold such different portfolios. The question now becomes, can the market support two video gaming ETFs?

It seems only appropriate to let competition be the ultimate judge.

Contact Lara Crigger at [email protected]

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